Oil drops after Iran and Israel announce ceasefire, but prices may remain volatile amid reports of new Iranian missile launch

Globe and Mail

6 hours ago

Oil fell and stock markets rose after a ceasefire was agreed by both Iran and Israel. But the markets proved volatile again on Tuesday morning after Israel accused Iran of violating the agreement brokered by U.S. President Donald Trump.
On Monday, Mr. Trump declared on social media that the two countries had agreed to a ceasefire. Israel did not confirm that it had done so until Tuesday morning, when Prime Minister Benjamin Netanyahu's office declare that 'all of the military objectives' of the country's military offensive had been achieved.
Mr. Trump's Monday message triggered a 7.2-per-cent drop in Brent crude, the international benchmark, the biggest fall since August, 2022, taking the price to US$71.50 a barrel. The plunge marked a turnaround from the opening price on Monday, when Brent climbed above US$80 as energy traders feared the U.S. attacks on Iran's uranium-enrichment sites would trigger a wider Middle East war.
Oil trimmed its losses somewhat Tuesday morning, after Israel vowed to retaliate against what it said was new missile fire from Iran.
'I have instructed the IDF [Israel Defense Forces] to respond forcefully to Iran's violation of the ceasefire with powerful strikes against regime targets in the heart of Tehran,' said Israel's Defence Minister Israel Katz.
The damage, if any, inflicted by the Iranian missiles was not immediately known. Also not known was whether the launch was specifically ordered by Iran's high military command in violation of the ceasefire agreement. Iranian state television denied that Iran had violated the ceasefire.
The reports of the Iranian missile launch immediately reversed some of oil losses. By late morning, European time, Brent crude was down 3.5 per cent from Monday's close. London's FTSE-100 index was up marginally. Germany's Dax index performed better, gaining almost 2 per cent. The euro was up slightly against the U.S. dollar.
Analysts were generally bullish on the market prospects in spite of the apparent violation of the ceasefire, all the more so since the Iranian missile attack on Qatar, home of a large U.S. military base, on Monday was fairly small and resulted in no injuries or fatalities.
After 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 U.S. and Iran.'
In a note published Tuesday morning, just before Israel accused Iran of violating the ceasefire, ING Economics said that 'Markets are materially scaling back geopolitical risk as President Trump declared a ceasefire between Iran and Israel is in place following measured retaliatory strikes on U.S. positions in Qatar yesterday.'
ING said the market will focus on Congressional testimony later today by U.S. Federal Reserve Chairman Jay Powell. He is expected to be grilled by Republicans for his cautious approach to easing interest rates, which has earned the ire of Mr. Trump.
ING said that investor will be looking to see if Mr. Trump's pressure on Mr. Powell 'has breached the independence shield of the Fed.'
As the shaky ceasefire came into effect, Germany posted some good economic news. The German economy's most important leading indicator, the IFO index, which measures business optimism, or lack thereof, rose for the sixth consecutive month. It reached 88.4 in June, the highest level since last summer.
In a note, Tony Sycamore, a market analyst at IG Australia, said 'We expect the market, which has a notoriously short attention span, to shift its focus back to tariffs and the Fed.'