Shares of USO plunged 3.0% to $126.88 on May 29 as crude oil's geopolitical risk premium — the extra cost baked into prices because of war fears — continued to unravel. Brent crude fell about 2% to $91.2 per barrel, its lowest in roughly six weeks, putting it on track for a 17% decline in May, the steepest monthly drop since 2020. For USO, which tracks WTI crude futures, the selloff marks a staggering reversal: the fund has shed roughly 11% in a single week, erasing gains that took months of geopolitical escalation to build.

  • A Ceasefire Framework Is Deflating the Price Spike That Made USO Soar. The U.S. and Iran have developed a framework extending their ceasefire 60 days while the Strait of Hormuz — through which roughly one-fifth of the world's oil flows — would be de-mined and reopened.

Brent started the year at just $61 per barrel before surging to $118 by the end of Q1 after U.S.-Israeli strikes on Iran effectively shut the strait. It peaked at $138 on April 7. The entire USO rally was built on that supply shock; as it fades, so does the fund's price.

  • Don't Expect Oil to Snap Back to Normal Overnight. Analysts warn that any recovery in flows would likely be slow, as mines would need clearing, damaged infrastructure repaired, and shut-in production restarted, with tanker delays also limiting supply restoration.

Six Gulf nations collectively shut in 10.5 million barrels per day of crude production in April — that capacity won't switch back on with a handshake. This means oil probably won't crater to pre-war levels immediately, giving USO a temporary floor.

  • The Deal Isn't Done — and History Says Be Skeptical. President Trump has not yet approved the proposed terms, while Vice President JD Vance cautioned that it remains uncertain whether or when an agreement could be finalized.

Since its declaration, the ceasefire has been violated by both sides. Any breakdown could re-ignite the premium just as quickly as it vanished, making USO a two-way bet on diplomacy.

  • The Underlying Math Points Lower if Peace Holds. Before the war, global oil supply was set to outpace demand by up to 3.7 million barrels per day — the largest projected surplus since 2015–2016.

The EIA expects Brent to fall to an average of $89 by Q4 2026 and $79 in 2027. If Hormuz fully reopens, USO faces a return to the structural oversupply narrative that had oil headed toward $60 before bombs started falling.

Bottom line: USO's fate hinges entirely on whether a fragile ceasefire becomes a durable peace. Holders are no longer trading oil fundamentals — they're trading foreign policy.