Oil prices plummeted by over 16 per cent on Wednesday following US President Donald Trump’s announcement of a two-week ceasefire with Iran, which includes the reopening of the vital Strait of Hormuz, a key route for global oil shipments.
Brent crude futures dropped by $18.27, or 16.72 per cent, to $91.00 a barrel by 1320 GMT. Meanwhile, US West Texas Intermediate (WTI) crude fell by $20.48, or 18.13 per cent, to $92.47. Diesel prices in Europe also saw a significant decline, with a $310.75 drop, or 20.34 per cent, to $1,217 per metric tonne.
The sudden decline in oil prices followed the announcement of a ceasefire agreement, with Trump stating that Iran had agreed to reopen the Strait of Hormuz for two weeks. However, despite the positive news, concerns remain about the long-term stability of the truce and its impact on oil supply.
The ceasefire deal is seen as a step towards de-escalation, but analysts remain cautious. UBS analyst Giovanni Staunovo noted that investors are focusing on the potential for de-escalation, which has led to the sell-off of oil. While some market observers remain optimistic, others believe it is too early to celebrate.
Iran’s decision to halt attacks and allow safe passage through the Strait of Hormuz for two weeks could enable the release of 10-13 million barrels of crude oil, said Tamas Varga, an analyst at PVM Oil. However, questions remain over whether the pre-conflict status quo will be restored after the ceasefire expires.
Despite the short-term optimism, many shipping companies are seeking clarity on logistics, while refiners have been inquiring about new crude loadings.
Geopolitical risks remain high, with Commonwealth Bank analyst Vivek Dhar warning that there is still potential for a significant geopolitical premium to influence oil prices, depending on the details of the ceasefire and further negotiations.
In response to the ceasefire, stock markets in the US surged, with futures for the S&P 500 rising 2.7 per cent and Dow Jones futures climbing 2.6 per cent. Major airline stocks, including Delta and United, soared more than 12 per cent in premarket trading.
Meanwhile, in Europe, the French CAC 40 gained 4.5 per cent, and the German DAX rose nearly 5 per cent. Asian markets also saw significant gains, with Japan’s Nikkei 225 rising 5.4 per cent and South Korea’s Kospi soaring 6.9 per cent.
The US dollar saw a decline in currency markets, falling to 158.39 Japanese yen from 159.52 yen, while the euro rose slightly to $1.1701 from $1.1597.
While the ceasefire agreement has brought some relief to markets, analysts stress that it is still too early to determine whether the deal will lead to a lasting peace and stable oil supplies.
