Oil prices tumbled on Wednesday and global stock markets rallied after the US and Iran agreed a two-week conditional ceasefire. The deal, announced by US President Donald Trump, saw him hold off on threatened attacks on Iran, while Iran's foreign minister, Abbas Araghchi, said passage through the Strait of Hormuz would be allowed for two weeks under Iranian military management.
Brent crude oil dropped by 16% before recovering slightly, while US crude futures sank by 17.6%, heading for their biggest daily fall since the Covid-19 lockdowns six years ago. By late Wednesday afternoon London time, Brent crude was down 13.5% at $94.36 a barrel, and US crude was down 15.5% at $95.36 a barrel. Prices remain well above pre-war levels, when Brent traded below $73 a barrel.
European stock markets rallied strongly, with the pan-European Stoxx 600 index gaining 3.7%, its biggest one-day rise in a year. In London, the FTSE 100 index closed up 2.5% at 10,608.9 points, its highest level since the early days of the Iran war. Oil company shares tumbled, with BP down 6% and Shell losing 4.7%. US markets also jumped, with the S&P 500 rallying 2.5% and the Dow Jones gaining 2.9%.
Asian markets saw strong gains, with Japan's Nikkei 225 rising over 5%, South Korea's Kospi soaring 7.5%, and Hong Kong's Hang Seng up 3.1%. European gas prices slumped, with the month-ahead UK gas contract down 17% at 111.1p a therm. Investors placed a combined $950m bet on oil prices falling hours before the ceasefire was announced, according to Reuters.
Kathleen Brooks, research director at trading platform XTB, said markets would monitor the fragile truce. "Only if the US or Iran walk away from the ceasefire completely and bombing restarts do we see the oil price potentially surging back to the highs of this week above $110 per barrel for Brent crude," she said. The ceasefire includes peace negotiations beginning in Islamabad on Friday.
