Shares of the United States Oil Fund plunged 6.1% in pre-market trading to $128.37 after the United States and Iran announced a mutual halt to military strikes, draining the geopolitical fear premium that had propelled crude — and USO — sharply higher over the past week. USO Drops 6% as US-Iran Ceasefire Vaporizes Oil's War Premium — But Can Prices Stay Down With the Strait of Hormuz Still in Play?
Shares of the United States Oil Fund tumbled 6.1% to $128.37 in pre-market trading as crude oil futures cratered after the U.S. and Iran paused military strikes, rapidly deflating the geopolitical risk premium that had supercharged energy prices. WTI crude fell to $83.51 per barrel on July 27, down 7.69% from the previous day. For USO holders — who own a fund that directly tracks the price of near-month WTI futures — every dollar off crude translates almost immediately into losses.
The War Premium That Built USO's Rally Is Unwinding Fast. Crude oil fell 3% to around $89.3 per barrel on Friday after reports that Pakistan, with support from China, was seeking to revive negotiations between the US and Iran. Monday's additional plunge extends that slide. The U.S. and Iran signed a memorandum of understanding in June to end the conflict and open the Strait of Hormuz , but the ceasefire collapsed in early July when Trump declared the ceasefire over and threatened to bomb Iran again. That whipsaw drove crude from the mid-$70s past $90 in weeks — gains now being surrendered just as quickly. USO rose from $125.51 on July 20 to $139.49 on July 23, then gave it all back.
China's Demand Collapse Gives Oil Bulls No Safety Net. Chinese crude oil imports fell sharply in June to near a decade low — purchases plunged 41% year-on-year to 29.27 million tons, the least since October 2016.
Gasoline and diesel demand in China began falling by 10% to 13% year-on-year, ongoing as of July 2026. With the world's largest oil importer pulling back, any supply relief from reopened shipping lanes hits a market that was already softening.
U.S. Inventories Are Building, and the Government Oil Reserve Is Being Drained. Commercial crude oil inventories increased 2.0 million barrels to 411.7 million barrels for the week ending July 17 — a bearish surprise during what should be peak summer demand. Meanwhile, another 5.1 million barrels left the Strategic Petroleum Reserve, bringing the total to 316.5 million barrels — the lowest level in over 43 years. That shrinking emergency cushion limits Washington's ability to intervene if prices spike again.
The EIA Sees More Downside Ahead. Expectations of increasing oil supply and moderating inventory draws have caused prices to fall; the Brent spot price averaged $85/barrel in June, down $22 from May. The EIA forecasts Brent averaging $74 in Q3 2026. If that target holds, USO could face another 10–15% decline from current levels. Investors betting on a quick rebound need the geopolitical match to reignite — and right now, diplomacy is winning.