LONDON: Oil fell below $100 a barrel on Wednesday after U.S. President Donald Trump said he had agreed to a two-week ceasefire with Iran, subject to an immediate and safe reopening of the Strait of Hormuz.
Brent crude futures were down $15.78, or 14.4%, at $93.49 a barrel by 1024 GMT. WTI futures slid $18.90, or 16.7%, to $94.05.
Benchmark European diesel prices also fell, shedding $311, or 20.4%, to $1,216.75 a metric ton.
Trump’s turnaround came shortly before his deadline for Iran to open the Strait of Hormuz or face widespread attacks on its civilian infrastructure. About 20% of the world’s daily oil supply passes through the narrow waterway.
“This will be a double sided CEASEFIRE!” Trump wrote on social media after posting earlier on Tuesday that “a whole civilization will die tonight” if his demands were not met.
Iran said it would halt its attacks if strikes against it stopped and that safe transit through the Strait of Hormuz would be possible for two weeks in coordination with Iranian armed forces, according to a statement by Foreign Minister Abbas Araqchi.
In theory, the 10–13 million barrels per day of crude oil and product supply stranded behind the Strait of Hormuz should now be released gradually, said Tamas Varga, analyst at brokerage PVM Oil.
“Whether the pre-March status quo will be re-established depends entirely on whether the truce can be turned into a permanent peace during the negotiations in Pakistan,” he added.
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Shippers were still seeking clarity on the logistics, while refiners inquired about new crude loadings on Wednesday, in response to the ceasefire deal.
Several Gulf states identified missile launches and drone attacks or issued warnings to civilians to take shelter.
“Even with a peace deal, Iran may be emboldened to threaten the Strait of Hormuz more frequently in the future, and the market will price in heightened risk to the Strait of Hormuz going forward,” said MST Marquee analyst Saul Kavonic.
The U.S.-Israeli war with Iran brought the steepest monthly oil price rise in history, of more than 50%.
“There is still scope for a significant geopolitical premium being entrenched for the foreseeable future based on the details of the comprehensive agreement,” Commonwealth Bank analyst Vivek Dhar said in a note.
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Trump said that the U.S. had received a 10-point proposal from Iran, which he called a workable basis to negotiate, and that the parties were a long way towards reaching a definitive agreement for long-term peace.
“It’s a good start and could pave the way to a more permanent reopening – but lots of ‘ifs’ still to work out,” said IG analyst Tony Sycamore.
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