Oil prices experienced their largest daily drop since the pandemic on Wednesday, while global stock markets surged after the US and Iran agreed to a two-week conditional ceasefire. The deal, announced by US President Donald Trump, temporarily halts threats of military action and allows for the reopening of the Strait of Hormuz under Iranian management.
Brent crude oil, the international benchmark, fell by 16% before recovering slightly to trade 13.5% lower at $94.36 per barrel by late afternoon in London. US crude oil futures sank by 17.6% initially, later settling 15.5% down at $95.36 per barrel. The decline marked the biggest one-day fall since the Covid-19 lockdowns six years ago, though prices remain well above pre-war levels when Brent traded below $73 per barrel.
European stock markets rallied strongly, with the pan-European Stoxx 600 index gaining 3.7% in its biggest one-day rise in a year. In London, the FTSE 100 closed up 2.5% at 10,608.9 points, its highest level since the early days of the Iran war. However, oil company shares tumbled, with BP down 6% and Shell losing 4.7%. Wall Street also celebrated, with the S&P 500 rallying 2.5% and the Dow Jones industrial average gaining over 1,300 points.
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, cautioned that 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,' she said.
The ceasefire agreement came just over an hour before Trump's deadline for threatened attacks on Iran was due to pass. Iran's national security council confirmed acceptance of the two-week truce, conditional on a halt to attacks against Iran. Peace negotiations are set to begin in Islamabad on Friday. However, the situation remains volatile, with reports of Israeli attacks on Lebanon and an alleged breach of the ceasefire by Iran, as well as an attack on Saudi Arabia's east-west pipeline.
