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Oil prices pared losses on Tuesday after Israel warned of new missile fire from Iran and pledged to retaliate, threatening a ceasefire announced just hours earlier by US President Donald Trump.
Brent crude, the international oil benchmark, fell as much as 5.6 per cent to $67.50 early on Tuesday after Trump said that the regional rivals had agreed to a ceasefire, allaying fears that the conflict would restrict global oil supply.
But prices regained some ground after Israel said it would “respond forcefully” to what it called a violation of the ceasefire, leaving Brent down 3.1 per cent on the day at $69.25 a barrel in London.
Iranian state television subsequently denied Tehran had violated the ceasefire.
Global stocks climbed, with the Stoxx Europe 600 index, Europe’s benchmark, up 1.2 per cent, led by airline shares. Futures contracts tracking the S&P 500 index climbed 0.8 per cent.
Oil prices fell sharply on Monday following Iran’s attack on a US military base in Qatar, which markets judged to be a “de-escalatory” gesture that would stave off a more serious assault on energy infrastructure by Tehran.
Brent closed 7.2 per cent down on Monday at $71.48 a barrel, the biggest drop since August 2022.
The moves marked a sharp turnaround from the open on Monday, when Brent surged above $80 as traders responded to US strikes on Iran’s nuclear facilities at the weekend.
Qatar said it had repelled a missile barrage fired by Iran, which targeted the Al Udeid air base near Doha, where 10,000 US troops are stationed.
Following the attack, Helima Croft, a former CIA analyst now at RBC Capital Markets, said: “The market is now clearly pricing in major de-escalation between the US and Iran.”
Analysts said the decline also reflected traders judging that Iran would not attack important Middle Eastern energy infrastructure or attempt to close the Strait of Hormuz, the channel for about a quarter of the world’s seaborne oil trade, in response to the incursions by the US and Israel.
“Oil markets have come to realise with a jolt that Iran has no interest in an uncontrolled conflagration. As in 2020, Tehran has calibrated a bare minimum response,” said Bill Farren-Price, at the Oxford Institute for Energy Studies.
Analysts also said the crude market was supported by plentiful supply, particularly after the Opec+ group of oil producers lifted its output targets in recent months.
“Another reason for the lack of war premium is the flood of oil that is hitting the market,” said Robert Yawger, commodity analyst at Mizuho Securities, an investment bank.
Additional reporting by Ian Smith and Emily Herbert in London
