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Oil prices extended declines from the previous session after US President Trump announced a ceasefire between Iran and Israel.
The ceasefire agreement has eased fears of oil supply disruption in the Middle East, with both sides finally agreeing to de-escalate, ending a 12-day war.
Oil Prices Reach 2-Week Lows
Oil prices plunged after the ceasefire announcement. WTI oil fell more than 11% while Brent Crude fell 10.5%, with both assets extending declines from the previous session. The decline started after a missile strike by Iran on a US airbase in Qatar reported no casualties, raising investors’ hopes that there might be a path to de-escalate the conflict. ⁽¹⁾
Oil markets have been rocked by the recent crisis in the Middle East on concerns over supply disruptions from the region, which pumps around a third of the world’s crude oil. Prices spiked, then retraced gains as the standoff unfolded, with Israel, Iran and the US all avoiding hits on oil-related infrastructure and vessel traffic continuing through the Strait of Hormuz with only minor disturbances. ⁽²⁾
Eased Concerns on Strait of Hormuz
The ceasefire announcement has eased concerns on the Strait of Hormuz after threats were made by Iran to block it. Around 20% of the world’s oil passes through the strait, which amounts almost to 20 million barrels per day. ⁽³⁾
Major OPEC exporters such as Saudi Arabia, Iran, the United Arab Emirates, Kuwait, and Iraq rely heavily on this sea route to deliver their oil, particularly to Asia, their main market. Qatar, one of the world’s largest exporters of liquefied natural gas (LNG), also ships nearly all of its cargo there. ⁽⁴⁾
US Secretary of State Marco Rubio has warned Iran against attempting to close the strait. It would be “economic suicide” for the Islamic Republic because their exports pass through the strait, Rubio said. ⁽⁵⁾
Iran produced 3.3 million barrels per day (bpd) in May, according to OPEC’s monthly oil market report released in June, which cites independent analyst sources. It exported 1.84 million bpd last month, with the vast majority sold to China. ⁽⁶⁾
Market Reactions
The ceasefire news boosted global stocks and weakened the US Dollar and oil. The Nikkei 225 rose 0.6% while European stocks surged, reaching 1-week highs. Gold decline more than 1% as safe-haven demand faded while risk on currencies such as the Euro, Pound Sterling and Australian Dollar rallied against the US Dollar. Energy Secretary Chris Wright noted that Trump’s strategy of escalating to de-escalate seems to have worked, calming markets.
Looking Ahead
The ceasefire between Israel and Iran has eased tensions in the Middle East, leading to a drop in oil prices and a rise in stock markets. The avoidance of a Strait of Hormuz closure has further calmed fears of oil supply disruptions. For now, the market is optimistic that the worst of the conflict is over, but the situation still remains fragile.
