Oil Prices Plummet as Israel Agrees to Ceasefire with Iran

By Samuel Akpan with agency report

The potential end to the conflict between Israel and Iran has been welcomed by market participants, leading to a significant drop in oil prices.

Brent crude was down 3.5% at $69.00 per barrel, while the main US crude contract WTI was 3.5% lower at $66.10 per barrel.

According to Lee Hardman at MUFG, the reversal of gains since the conflict started is a clear indication of the market’s relief.

“A potential end to the conflict has been welcomed by market participants,” Hardman wrote.

The Israeli government’s announcement of a bilateral ceasefire with Iran, as proposed by US President Donald Trump, has eased fears of an energy market shock.

The conflict, which had driven crude prices up, had briefly spiked on the prospect of Iran retaliating to a US attack on its nuclear facilities by throttling oil transport through the strategic Strait of Hormuz.

However, when Iran launched missiles at a major US base in Qatar, with oilfield assets unaffected, prices tumbled.

Stephen Innes at SPI Asset Management noted that Tehran “played it cool” with their retaliation, hitting a US base “loud enough for headlines, quiet enough not to shake the oil market’s foundations”.

The market reaction has been swift, with shares in Asia rising as fears of an energy market shock eased.

Tokyo ended the day 1.1% higher, while Shanghai closed up 1.2%. Hong Kong closed up 2.06% on Tuesday afternoon.

In Europe, London gained 0.7% in early trade, while Paris was up 1.5% and Frankfurt jumped 1.8%.

The dollar gave up gains after Federal Reserve Governor Michelle Bowman indicated that she would support cutting interest rates at the July meeting if inflation holds steady.

The market currently expects the Fed to resume cutting interest rates in September.

The Israeli government’s statement noted that the country had “achieved all the objectives” in its war with Iran, adding that it had removed “an immediate dual existential threat: nuclear and ballistic”.

However, the statement also warned that “Israel will respond forcefully to any violation of the ceasefire”.

As the situation continues to unfold, market participants will be closely watching for any developments that could impact the global economy.