Oil prices tumbled on Wednesday and global stock markets rallied after the US and Iran agreed a two-week conditional ceasefire. Investors welcomed the news that Donald Trump had held off on his threat to bomb Iran, while Iran’s foreign minister, Abbas Araghchi, said passage through the Strait of Hormuz would be allowed for the next two weeks under the management of Iran’s military. Wall Street recorded its biggest single-day rally in a year.
Oil fell below the $100-a-barrel mark, even though it was not certain that the US would accept a 10-point proposal drawn up by Iran. Brent crude oil dropped by 16%, while US crude oil futures sank by 17.6%, heading for their biggest one-day fall since the Covid-19 lockdowns six years ago. However, prices later recovered off their lows as Israel launched its biggest attacks yet on Lebanon and on reports that Iran halted the passage of oil tankers because of an alleged Israeli ceasefire breach.
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. The prices remain well above where they were before the start of the Iran war, when Brent traded below $73 a barrel. European stock markets rallied strongly, with the pan-European Stoxx 600 index gaining 3.7%. In London, the FTSE 100 closed up 2.5% at 10,608.9 points, its highest since the early days of the Iran war.
US stock markets also jumped, with the S&P 500 rallying by 2.5% to 6,782.81, the Dow Jones gaining 2.9%, and the Nasdaq Composite advancing 2.8%. Asia Pacific markets saw strong gains, with Japan’s Nikkei 225 rising more than 5%. European gas prices slumped, with the month-ahead UK gas contract down 17% at 111.1p a therm.
Kathleen Brooks, a research director at XTB, said markets would be monitoring 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,” she said. Jim Reid of Deutsche Bank added: “Investors will be breathing a big sigh of relief that an off-ramp out of the war is being taken even as there’ll be various elements to watch.”
