Oil prices dipped sharply to their lowest levels in more than a week on Tuesday as U.S. President Donald Trump announced that a ceasefire has been agreed between Iran and Israel, alleviating concerns about potential supply disruptions in the Middle East, a significant oil-producing region.
Brent crude futures declined by $2.08, or 2.9 percent, to $69.40 a barrel around 03:30 GMT (currently trading above $68.75), after previously tumbling more than 4 percent and hitting their lowest level since June 11.
U.S. West Texas Intermediate crude dropped $2.03, or 3.0 percent, to $66.48 per barrel (currently trading above $66.5), having plummeted 6 percent to its weakest level since June 9 earlier in the session.
Oil markets eye return to normalcy
Trump announced on Monday that both Israel and Iran have fully agreed to a ceasefire, stating that Iran will begin the ceasefire immediately, followed by Israel after 12 hours. If both parties maintain peace, the conflict will officially conclude after 24 hours, ending a 12-day period of hostilities.
“If the ceasefire is followed as announced, investors might expect the return to normalcy in oil,” Reuters reported, citing Priyanka Sachdeva, senior market analyst at Phillip Nova. “Moving forward, the extent to which Israel and Iran adhere to the recently announced ceasefire conditions will play a significant role in determining oil prices,” Sachdeva added.
Trump emphasized that a “complete and total” ceasefire will take effect with the aim of ending the conflict between the two nations.
“With the ceasefire news, we are now seeing a continuation of the risk premium built into crude oil prices last week all but evaporate,” stated Tony Sycamore, an analyst at IG. Iran is OPEC‘s third-largest crude producer, and the easing of tensions would enable it to export more oil and prevent supply disruptions, a crucial factor in recent oil price increases.
Threat to Strait of Hormuz diminished
Both oil contracts settled over 7 percent lower in the previous session after rallying to five-month highs following the U.S. attack on Iran’s nuclear facilities over the weekend, which raised fears of an escalating Israel-Iran conflict. With the immediate threat to the vital Strait of Hormuz shipping lane seemingly diminished, U.S. crude futures fell another 3.4 percent to $66.15 per barrel, the lowest since June 11.
“With markets now viewing the escalation risk as over, market attention is likely to shift towards the looming tariff deadline in two weeks’ time,” noted Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities. “Our sense is that the quicker-than-expected resolution to the Middle East conflict leads to expectations for a swifter resolution on tariffs and trade deals.”
Concerns had been mounting that any disruption to maritime activity through the strait could drive prices skyward, potentially into three-digit territory. For now, however, traders were taking a moment to catch their breath after the recent spike in oil prices.
