LONDON: Oil prices fell below $80 a barrel on Tuesday, hitting three-month lows as markets reacted to easing geopolitical risks after the Pakistan-mediated US-Iran peace deal and expectations of a reopening of the Strait of Hormuz.
The drop accelerated to more than five percent after a report by the Wall Street Journal that Washington could ease sanctions on Iranian crude as part of the deal to end the war in the Middle East, allowing Tehran to immediately sell crude and refined oil products.
International benchmark Brent crude fell to a three-month low below $79 a barrel, while US West Texas Intermediate (WTI) dropped below $76 a barrel.
Earlier, US President Donald Trump said the Strait of Hormuz would “completely open” once the United States and Iran sign their agreement in Switzerland on Friday.
Iranian media reported that three oil tankers and two cargo ships had already passed through previously restricted waters.
Tehran had imposed restrictions on the strategic waterway after the US and Israel launched their war against Iran on February 28.
Meanwhile, global equity markets showed a mixed response.
On Wall Street, the Dow Jones Industrial Average rose 1.0 percent, while the broader S&P 500 slipped less than 0.1 percent and the Nasdaq Composite fell 0.4 percent.
“It’s normal for markets to want to consolidate their gains after strong up days, especially now that we’re still trying to figure out exactly what’s in the agreement that’s been signed,” said Steve Sosnick of Interactive Brokers.
European shares closed higher, while Asian markets ended mixed.
Kathleen Brooks, research director at trading group XTB, said markets were beginning to factor in a “peace dividend”.
“Although the deal has not been formally signed, there already appears to be a peace dividend for markets,” she said.
“We are seeing European markets play catch-up with the US, and this could continue, as some European indices remain below their pre-war levels,” she added, referring to London’s FTSE 100.
Despite the sharp drop in oil prices, analysts cautioned that supply conditions could remain tight in the near term.
Susannah Streeter, chief investment strategist at Wealth Club, said oil was trading at its lowest level in two months but still above pre-conflict levels.
“It’s still trading at a premium compared to pre-conflict levels, demonstrating the ongoing uncertainties about supplies,” she said.
US Energy Department data showed that strategic oil reserves fell last week to their lowest level since 1983, indicating sustained demand to rebuild stockpiles even as geopolitical tensions ease.
