Oil extends slump as Trump announces ceasefire in Middle East
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(Bloomberg) — Oil extended a slump as US President Donald Trump announced a tentative ceasefire between Iran and Israel.
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Global benchmark Brent tumbled almost 5% toward $68 a barrel in early Asian trading, before paring some of that drop. The plunge — which followed a roller-coaster session on Monday that ended in steep losses — took prices to below their level on June 12, the day before Israel attacked Iran. Gold also fell.
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In a move that will lower crude's risk premium, Trump said that Israel and Iran had agreed to a 'complete and total ceasefire,' which would begin at about midnight New York time, according to a post on Truth Social.
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The global oil market has been rocked by the crisis in the Middle East on concerns that the conflict could disrupt supplies from the region that pumps about a third of the world's crude. Prices initially spiked, then retraced gains as the standoff unfolded, with Israel, Iran and the US all avoiding hits on oil-related infrastructure and vessel traffic continuing through the Strait of Hormuz with only minor disturbances.
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'Traders are now firmly of the belief that the risk of a supply shock is now firmly in the rear-view mirror.' said Chris Weston, head of research at Pepperstone Group Ltd. 'The prospect of a prolonged conflict with US involvement has been repriced, giving the green light to add risk, and pare back well-owned tail-risk hedges.'
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In a sign of reduced tensions, Brent's prompt spread — the difference between its two nearest contracts — narrowed to 93 cents a barrel in backwardation. While that's still a bullish pattern, with nearer-term prices above those further out, it's down from last week's closing peak of $1.77 a barrel.
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The crisis erupted earlier this month as Israel attacked Iran in a bid to eradicate its nuclear program, decimate its leadership, and degrade its military, with Tehran firing missiles in reply. In a major escalation, Trump then ordered a weekend strike against the Islamic Republic's nuclear sites. Iran's retaliation to that move was a limited missile salvo against a US air base in Qatar.
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The tentative ceasefire in the Middle East — if it takes effect and lasts — may pull traders' main focus back to the crude market's underlying fundamentals. There are widespread expectations that oil supplies will run ahead of demand in the second half of this year, spurring a build-up in global stockpiles.
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