Oil Prices Plunge 5 Per Cent As Israel-Iran Ceasefire Eases Middle East Tensions

The easing of tensions in the Middle East—a key oil-producing region—helped calm fears over potential supply disruptions that had recently driven prices higher.

An end to hostilities could enable Iran to increase its crude exports, thereby alleviating recent supply concerns that had contributed to price spikes.

Source : ABPLIVE AI

Oil prices recorded a sharp decline on Tuesday, reaching their lowest levels in two weeks, following the announcement that Israel has accepted US President Donald Trump's ceasefire proposal with Iran.

The easing of tensions in the Middle East—a key oil-producing region—helped calm fears over potential supply disruptions that had recently driven prices higher, reported Reuters.

Brent crude futures saw a significant drop of $3.82, or 5.3 per cent, trading at $67.66 per barrel by 12:15 PM. Similarly, US West Texas Intermediate crude fell by $3.75, representing a 5.5 per cent loss, to settle at $64.76 per barrel.

The ceasefire agreement, confirmed by Israeli Prime Minister Benjamin Netanyahu, comes after what he described as Israel successfully neutralising Tehran's nuclear and ballistic missile capabilities. Netanyahu's office released a statement on Tuesday affirming the agreement to President Trump's proposal. According to Trump, Israel and Iran both fully agreed to a ceasefire. He further noted that Iran would implement the ceasefire immediately, with Israel following 12 hours later. If both parties maintain the truce, the conflict will be officially declared over after 24 hours, concluding nearly two weeks of hostilities.

Investor Sentiment Shifts on Ceasefire Developments

The announcement of the ceasefire prompted a swift reaction in the oil markets, as traders reassessed the likelihood of prolonged supply disruptions. “If the ceasefire is followed as announced, investors might expect the return to normalcy in oil,” commented Priyanka Sachdeva, senior market analyst at Phillip Nova. She further noted that the ongoing commitment of both nations to the ceasefire terms will play a crucial role in shaping future oil price trends.

Echoing similar sentiments, Tony Sycamore, analyst at IG, explained the immediate market response: “With the ceasefire news we are now seeing a continuation of the risk premium built into crude oil price last week all but evaporate.” The resolution of conflict offers a reprieve for markets that had been on edge following escalating tensions.

Iran’s role as OPEC's third-largest oil producer adds further weight to the market’s sensitivity. An end to hostilities could enable Iran to increase its crude exports, thereby alleviating recent supply concerns that had contributed to price spikes.

Market Retraces After Dramatic Price Swings

Prior to the ceasefire news, both Brent and WTI contracts had experienced dramatic movements. In the previous trading session, oil prices had closed more than 7 per cent lower after surging to five-month highs. The spike followed the US military’s strikes on Iran’s nuclear facilities over the weekend, which had raised fears of a broader regional conflict involving Israel and Iran.

Investor attention  also zeroed in on the Strait of Hormuz, a vital shipping channel connecting the Persian Gulf with global markets. The narrow waterway handles between 18 to 19 million barrels of oil and fuel daily, accounting for roughly one-fifth of global consumption. Concerns had mounted that any disruption in shipping through this critical chokepoint could drive prices sharply higher, potentially breaching the three-digit mark.

However, with the ceasefire now in place, traders appear to be taking a breather. “Technically, the overnight sell-off reinforces a layer of resistance between approximately $78.40 (October 2024 and June 2025 highs) and $80.77 (the year-to-date high), and it's clear that it will take something extremely unexpected and detrimental to supply for crude oil to break through this layer of resistance,” Sycamore added.