The sharp drop in oil prices opens the door to interest rate cuts? The easing of tensions in the Middle East may accelerate the Fed's shift in July.

Trump announced a temporary ceasefire agreement between Iran and Israel, and international oil prices continued to fall. During the early trading session in Asia, the price of August futures for American crude oil plummeted by 5.1% to $65.02 per barrel, continuing the downward trend seen after Monday's sharp fluctuations. This sharp drop brought oil prices below the level on June 12, the day before Israel's attack on Iran, with the market risk premium quickly dissipating as tensions in the Middle East eased. The Middle East crisis had caused significant turbulence in the oil market. As a core region that accounts for about one-third of global oil production, escalating geopolitical conflicts in the region have raised concerns about supply disruptions. Although Israel and Iran engaged in mutual attacks earlier in the month, with Israel targeting Iranian nuclear facilities and military objectives while Tehran retaliated with missile strikes on Israel, neither side targeted oil facilities and the shipping in the Hormuz Strait was only briefly disrupted. With Trump announcing a "full ceasefire" agreement to take effect at midnight in New York time, concerns about geopolitical risks in the market significantly eased. The current fundamentals of the oil market are driving price trends. Traders expect global oil supply to be excessive in the second half of the year, with accumulating inventory pressure becoming more evident. OPEC+ oil-producing countries, including Iran, continue to ramp up production, and the pace of restarting idle production capacity further intensifies expectations of a loose supply. The Trump administration has explicitly voiced support for a low-price energy strategy, pressuring energy producers to lower prices after military action over the weekend and urging increased domestic drilling, aligning with its economic agenda. The downward trend in oil prices may open a window for easing global inflation. Federal Reserve Board members Waller and Vice Chair Bowman recently stated that if inflation remains under control, the possibility of a rate cut in July could increase. Vice President Pence, in an interview following the ceasefire declaration, said that the U.S. military's precision strikes over the weekend had achieved the strategic goal of "preventing Iran from obtaining nuclear weapons," aligning with policy and market trends in the oil price.