After five days of gains, oil prices came under significant pressure yesterday, with ICE Brent settling 4.15% lower. The sell-off came as the US avoided taking immediate action against Iran amid ongoing protests in the country, ING's commodity experts Ewa Manthey and Warren Patterson note.

Brent drops over 4% amid eased geopolitical risks

"There had been growing noise in recent days that the Trump administration was considering military intervention, raising concerns not only over Iranian supply, but broader risks to supply from the Persian Gulf. Any escalation with Iran will also raise concerns about potential disruption to oil flows through the Strait of Hormuz, a chokepoint where around 20m b/d passes."

"While risks have eased somewhat, they remain significant, keeping the market nervous in the short term. However, the longer this goes on without any US intervention, the risk premium will continue to fade, allowing more bearish fundamentals to dominate."

"While we maintain a bearish outlook for the market, we are seeing strength in the prompt ICE Brent timespread. The spread held up relatively well yesterday despite weakness in the flat price. This suggests some tightness in the spot market, likely due to a decline in Kazakh oil flows from the CPC terminal."