Oil prices plunge after Israel-Iran 'ceasefire' talk

Oil prices fell sharply on Tuesday morning after reports of a ceasefire agreement between Israel and Iran eased fears of a severe supply shock. Prime Minister Benjamin Netanyahu said Israel agreed to a ceasefire after successfully removing Tehran's nuclear and ballistic missile threat.

Iranian state television reported that a ceasefire had been 'imposed' on its neighbour following strikes on a US base in Qatar . US President Donald Trump said the 12-day conflict will officially end if both sides maintain a ceasefire for 24 hours .

Oil prices slumped to a two-week low in the wake of the announcement, with Brent crude falling 5.3 per cent at $67.66 a barrel (bl), while WTI crude was down 5.5 per cent to $64.76 per barrel. But news that both sides of the conflict had already violated the agreement saw prices falls recede, with Brent down 3 per cent at $69.27/bl and WTI down 3.1 per cent at $66.35/bl by midday.

It still marks a sharp reversal from the peak of hostilities when oil prices spiked to levels not seen since the beginning of the year at almost $80. The FTSE 100 and FTSE 250 opened 0.5 and 0.8 per cent higher, respectively on Tuesday. EasyJet and British Airways owner IAG led FTSE 100 gains, soaring 6.5 and 7 per cent respectively, after the conflict forced airlines to cancel flights to the Middle East.

But the blue-chip index was dragged by the likes of BP and Shell , which fell 6.1 and 4.4 per cent, respectively. Iran is OPEC's third largest oil producer but market fears were focused on the potential for disruption to the Strait of Hormuz, through which roughly a fifth of global crude supply flows.

Analysts had warned disruption crucial shipping lanes could drive oil prices above $120/bl, potentially leading to another global energy price-driven inflation spiral. ING strategists said on Tuesday that oil prices are now 'indicating that the crisis, at least in terms of market relevance, is largely over'.

They added: 'Further retaliation from the Iranian regime could still challenge overall risk sentiment, but breaking from current trading ranges has proven difficult already.' Shore Capital research analyst James Hosie said: 'Near term brent is now $6/bl lower than it was on the day after Israel launched its first airstrikes against Iran, as the threat of material near-term supply disruption subsides. 'A lasting ceasefire should lead to oil markets reverting to concerns about excess supply emerging in Q4 due to weaker demand growth and the need to accommodate additional OPEC+ volumes.

'However, what happens next with whatever remains of Iran's nuclear programme is yet to be resolved. 'The US and others could attempt to restrict Iranian oil and fuel exports (c.2 million barrels a day) as leverage in future negotiations. In such a scenario, we would expect other OPEC+ members to fill any supply gap and largely mitigate the impact on oil prices.'