Oil Prices Plummet as Iran and Israel Honour Ceasefire Agreement

Strategic Insights -

Oil prices plummeted 5.75 percent on Tuesday after Iran and Israel appeared to honour a ceasefire agreement negotiated by US President Donald Trump. The drastic drop in oil prices was triggered by a bout of volatile market trading on Tuesday morning, following a ceasefire announcement by Mr. Trump on Monday. Oil prices had surged to a 7.2-per-cent drop in Brent crude, the international benchmark, taking the price to $71.50 a barrel.

Key Takeaways:

  • The ceasefire agreement between Iran and Israel was negotiated by US President Donald Trump, with Iran firing three missiles at Israel after the truce came into effect.
  • Israel destroyed a radar station near Tehran in response to the Iranian missile salvo, with no casualties reported.
  • The US bunker-buster bomb attacks on Iran's uranium-enrichment sites, plus continued Israeli raids, had earlier triggered fears of a wider Middle East war, causing oil prices to surge.
  • OPEC's decision to hike production quotas has contributed to the glut of oil on the world markets, pushing down prices.
  • The Persian Gulf states, including Iran, have increased oil production, putting downward pressure on prices.
  • The ceasefire has delivered assurances to energy traders and investors that Iran will keep the Strait of Hormuz open to tanker shipping.
  • Analysts are bullish on the market prospects, with Helima Croft, a former CIA analyst, stating that the market is pricing in major de-escalation between the US and Iran.
  • ING Economics noted that markets are scaling back geopolitical risk following the ceasefire announcement.

Statistics:

  • Oil prices dropped 5.75 percent to $69 a barrel, with Brent crude trading at just short of $69.
  • The price of Brent crude fell 3.5 percent from Monday's close.
  • OPEC has been hiking production quotas, contributing to the glut of oil on the world markets.
  • The Persian Gulf states, including Iran, have increased oil production by 20 percent in the past month.
  • Iran's missile attack on Qatar on Monday resulted in no injuries or fatalities.

Sources:

  • Bloomberg
  • RBC Capital Markets
  • ING Economics
  • IG Australia
  • Congressional testimony by US Federal Reserve chair Jay Powell