Oil prices plunge and stocks jump after Trump announces conditional ceasefire with Iran | Oil

Oil prices fell on Wednesday and global stock markets rose after the United States and Iran agreed to a two-week conditional ceasefire.

While investors welcomed the news that Donald Trump had postponed his threat to bomb Iran until the “stone age”, Iranian foreign minister Abbas Araghchi said passage through the Strait of Hormuz would be allowed under the direction of the Iranian military for the next two weeks.

Although it is not certain whether the USA will accept the 10-item proposal prepared by Iran, oil fell below 100 dollars per barrel. It has not yet been determined how the strait will reopen and be managed after the two-week grace period.

Brent crude oil, the international standard, fell by 16%, while US crude oil futures lost 17.6%. But prices later recovered from their lows as Israel launched its largest-ever attack on Lebanon. News of an attack on Saudi Arabia’s massive east-west pipeline to the Red Sea, which allows oil exports to escape through the strait, also caused prices to rise.

Brent crude fell 13.5% to $94.36 per barrel as of Wednesday afternoon London time. US crude fell 15.5% to $95.36 a barrel, heading for its biggest daily decline since the Covid-19 lockdown six years ago.

Prices are well above where they were before the Iran war, when Brent was trading below $73 per barrel.

Reuters reported on Wednesday that hours before the ceasefire was announced, investors bet a total of $950 million that oil prices would fall.

With just over an hour before the deadline on Tuesday, the US president said he was postponing threatening strikes against Iran on condition that Tehran agrees to a two-week ceasefire and reopens the Strait of Hormuz.

Shortly thereafter, Iran’s National Security Council confirmed that it had agreed to a two-week ceasefire if attacks on Iran were stopped. Tehran said peace talks with the US will begin in Islamabad on Friday.

European stock markets rose strongly on Wednesday. The pan-European Stoxx 600 index increased by 3.7 percent, the biggest single-day rise in a year. Travel and entertainment stocks rose; Air France gained 13%, shares in Lufthansa gained 8%, British Airways owner IAG gained 8% and holiday group Tui gained almost 10%.

The FTSE 100 index in London closed with a 2.5 percent increase at 10,608.9 points, reaching its highest end-of-day level since the first days of the Iran war. Oil company shares fell, with BP losing 6% and Shell losing 4.7%.

US stocks jumped at the start of trading as Wall Street declared a ceasefire. The Dow Jones industrial average gained almost 1,400 points, or 3%, in early trading as shares of travel companies rose while oil producers retreated.

This followed strong gains in Asia Pacific markets, where Japan’s benchmark Nikkei 225 gained more than 5%, Australia’s S&P/ASX 200 gained 2.55% and South Korea’s Kospi gained 7.5%. Hong Kong’s Hang Seng index rose 3.1%, while China’s CSI 300 index rose 3.2%.

European gas prices fell as the month-ahead gas contract in the UK fell 17% to the 111.1-year thermal level on Wednesday afternoon.

Jim Reid, market strategist at Deutsche Bank, said: “Investors will breathe a huge sigh of relief that the war is on the way out, although there are a number of factors that will need to be monitored to see whether this leads to a sustained de-escalation.

“Will the ceasefire continue? We saw some attacks by Israel and Iran during the night, but these may have been in preparation before the conditional ceasefire. We have also seen conflicting comments on whether the ceasefire will include Israeli action in Lebanon. Could the talks lead to a permanent end to hostilities?”

In the bond market, treasury yields fell on news of a potential ceasefire. The yield (or interest rate) on the 10-year Treasury fell to 4.24% from 4.30% earlier Tuesday. UK government bond prices have strengthened, pushing the yield on the 10-year UK bond down to 4.7% from 4.9% on Tuesday.

Gold prices rose more than 2 percent to $4,812 per ounce. Cryptocurrencies are also on the rise; Bitcoin rose 2.9% to $71,327, while Ether rose 5.6% to $2,234.

Saul Kavonic, head of energy research at MST Financial, said the two-week pause “provides an outlet for Trump’s overblown ultimatum, but not yet an outlet for oil markets or war.” He told Reuters that oil and LNG production was unlikely to resume until there was greater confidence in a permanent ceasefire.

Kavonic said: “A two-week ceasefire would allow some oil and LNG tankers to be released from the Strait of Hormuz and provide some relief from market pressure in May. This would not result in more production, only the release of water storage.”

Capital Economics group chief economist Neil Shearing said the most critical issue for markets remains the status of the Strait of Hormuz. He said: “ [10-point] The framework appears to allow full passage of oil tankers through the strait, but it remains unclear under what conditions this will occur. Some reports suggest introducing tolls of around $1-2 million per tanker.

“Given that tankers typically carry 1-2 million barrels of crude oil, such charges would add roughly $1 per barrel to the cost of oil transported through the strait. This would therefore have only a modest impact on global energy prices, but in practice could mean a de facto partial nationalization of the shipping route.”

Prashant Newnaha, senior strategist at Singapore-based TD Securities, said a renewed escalation cannot be ruled out, “but markets see this ceasefire as the real deal and all parties involved will sell the ceasefire as a big win.”

He said: “Looking ahead, oil prices are not returning to pre-war levels. This will leave the persistence of inflation as a key issue for markets to consider.”

via Associated Press