Global oil costs have fallen back sharply amid hopes that a ceasefire between Israel and Iran will end the threat of disruption to crucial energy flows for the world economy.
The cost of a barrel of Brent crude, the international benchmark, was as high as $81 late on Sunday night as financial markets opened in Asia.
It was the first reaction to news of the US bombing of Iran’s nuclear facilities over the weekend and built on gains seen widely since Israel first began its strikes 10 days previously.
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But prices came down on Monday evening after it became clear that Iran’s retaliation, through missile attacks on a US base in Qatar, were a mere face-saving exercise due to the Americans being pre-warned by Tehran.
Drops of more than 7% in US trading were followed by a further 3% fall on Tuesday, with Brent currently standing just below $68.
It remains, however, $5 a barrel higher on where it started the month and reflects the continuing, possible, threat to shipping in the key Strait of Hormuz which handles 20% of global oil and 30% of natural gas supplies.
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The main concerns in the energy market were over potential disruption to liquefied natural gas (LNG) deliveries as it remains in high demand.
Europe is yet to fully restock following the harsh end to last winter which drained storage levels.
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As such prices had already been driven up by steep competition from Asia for Gulf supplies.
UK day-ahead natural gas prices were more than 25% up in the month, as of Monday, and have not fallen as sharply as oil costs.
Financial services specialists have pointed to upwards shifts in the risk premiums facing cargo, especially tankers, due to the conflict.
Analysts had warned last week that a sustained Middle East war with disruption to energy shipping risked a fresh cost of living crisis similar to that seen after Russia’s invasion of Ukraine in 2022.
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Only a sustained ceasefire is likely to bring the additional costs seen in wholesale prices down.
Stock markets have also reacted positively to the ceasefire development, with the FTSE 100 in London up by 0.3%.
The gains in London have lagged those seen across much of Europe.
Commenting on the moves Russ Mould, AJ Bell’s investment director, said: “The markets will be watching closely to see if the cessation in hostilities is maintained and for Iran’s next move – amid noises from that side that no such ceasefire has been agreed.
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“Defensive stocks, oil producers and precious metals miners were all under pressure in early trading.
“Gold slipped back as its safe-haven attributes were less in demand. This rather clipped the wings of the FTSE 100 given its relatively heavy weightings in these areas and saw the index underperform its European counterparts.
“On the flipside, travel stocks moved higher, both on the implications for fuel costs but also as the potential hit to foreign travel appetite that might have resulted from any further escalation of Middle East tensions seems to have been swerved.”
