The announcement of a ceasefire between Israel and Iran, which Donald Trump said “is now in effect”, has resulted in an immediate pullback in oil prices.
Brent Crude Oil, seen as a global benchmark of prices, has dropped 4.95 per cent, sitting back under $68 a barrel having been $77-78 for much of Monday and as high as high as $80 over the weekend.
The drop back to March price levels is a notable falloff, not just in actual price but in fears of further escalation, with some analysts estimating this week that oil prices could have soared beyond $100 in the event of Iran partially or temporarily closing off the Strait of Hormuz.
That narrow sea passageway is the route taken by 20 million barrels of oil a day, with around fifth of the world’s supply estimated to pass through it. Iran had voted to close it, before agreeing to the ceasefire.
Raising oil prices by $10 can contribute 0.1 per cent to an economy’s inflation levels, which can move closer to 0.2 per cent over prolonged periods. It also makes energy, production and transport more costly, as well as fuel.
Prior to a two-month spell from April to June when Brent dropped to the mid-to-low $60s, late 2021 was the last time oil was this price.
As oil prices dropped, global stock markets reacted in opposite fashion, with investors sending Asian indices higher overnight and European markets opening higher on Tuesday.
The FTSE 100 was up 0.6 per cent minutes after trading began, with France’s CAC 40 and Germany’s DAX both more than 1.8 per cent higher by the same point. The UK’s benchmark had not dropped as much in recent days as its European counterparts, in part due to the oil giants BP and Shell, which saw their share prices rise when oil prices went up.
In turn, both are lower once more on Tuesday, Shell down 4.25 per cent and Shell dropping 6 per cent in early trading.
