[MARKET ANALYSIS] Oil prices are contained after dropping 8% on Monday amid hopes for diplomacy and despite a report that the US conducting a small-scale, defensive attack on Iran's Qeshm Island

WTI/Brent: WTI Dec'26 +0.3% / Brent Jan'27 Flat

• Oil futures are contained after slumping yesterday by around 8%, with WTI slipping back beneath the USD 100/bbl level amid hopes for diplomacy following a slew of geopolitical headlines, including comments from US President Trump, who responded 'no' when asked if he was considering striking Iran after the midterms, while he also stated Iran wants a settlement as soon as possible and that it could happen. Trump was also said to be in no hurry to resume the war, and VP Vance noted that some progress was made on Iran, while Iranian Foreign Minister Araghchi announced that Iran had presented its conditions and plan. Nonetheless, there were reports of explosions heard in Qeshm and other areas in Iran, with US officials cited by WSJ later confirming that the US had attacked Iran's Qeshm Island, while the attack was described as small-scale, defensive and aimed at denying Tehran the freedom to attack commercial ships in the Strait of Hormuz, although this did little to impact prices.

Gold: +0.1%

• Takes a breather following the prior day's rebound, which coincided with softer yields and a retreat in oil, but with the precious metal remaining beneath the USD 4,000/oz level.

Copper: -0.9%

• Gradually retreated amid the mostly negative sentiment in the region, including in its largest buyer, China.

Episodes of this kind, where crude spikes on a Middle East supply-threat scare and then surrenders most of the move on diplomatic signalling, are among the most repeated patterns in oil: the risk premium is built fast on tail-risk pricing around chokepoints such as the Strait of Hormuz, and it deflates just as fast once physical flows are confirmed uninterrupted. The tell in this tape is that a reported US strike on Qeshm Island, framed as small-scale and defensive rather than aimed at energy infrastructure, produced no bid; in past escalations of this kind the market has distinguished sharply between action against military or naval targets and anything touching export facilities or tanker traffic, with only the latter sustaining a premium. The mechanism to watch is freight and war-risk insurance rates in the Gulf alongside front-month timespreads: when genuine supply fear is present, backwardation steepens and tanker costs jump, and their absence here is consistent with a headline-driven rather than physical repricing. The diplomatic track, with both sides publicly floating settlement language, follows the usual sequence in which maximalist rhetoric precedes negotiation, and the actors involved have prior form for de-escalation after market-moving threats. Gold fading alongside oil while yields soften fits the established safe-haven rotation pattern once the acute geopolitical leg stalls. Follow-ons worth noting are any verified disruption to Hormuz transits, OPEC-producer commentary on spare capacity, and whether the next round of headlines shifts from intent to action on energy infrastructure specifically.