Oil is falling so much it's now cheaper than it was before the Iran-Israel conflict
Oil prices fell sharply Tuesday, returning to levels last seen before the Iran-Israel conflict, as investors cheered news of a ceasefire, albeit fragile, between the two countries.
Brent crude, the global oil benchmark, was trading 4.3% lower on the day early Tuesday morning ET at $68.44 a barrel, while West Texas Intermediate crude, the US oil benchmark, was also trading 4.3% down at $65.55 a barrel.
These levels are broadly comparable to the closing prices before Israel launched an unprecedented attack on Iranian nuclear facilities on June 13.
That assault triggered a 12-day conflict that has led both sides to fire a barrage of missiles into the other's territory, as well as direct military involvement by Israel's biggest ally, the United States.
US President Donald Trump announced the ceasefire late Monday ET, though hours later Israel accused Iran of violating the terms and vowed to launch fresh strikes on Tehran. Iran denied the allegations.
US stock futures were in the green. The Dow was on track to open 262 points, or 0.6%, higher. S&P 500 futures were 0.7% higher, while futures in the tech-heavy Nasdaq rose 1%.
In Asia, stock indexes closed the day higher. Hong Kong's Hang Seng finished up 2% and mainland China's Shanghai Composite was 1.2% higher on the day.
Meanwhile, in Europe, the benchmark STOXX Europe 600 index, which includes UK-listed companies, was trading 1.2% up by early morning ET.
'We've seen a pretty remarkable de-escalation of tensions in the Middle East,' analysts at Deutsche Bank wrote in a note Tuesday. 'The past 12 days look set to join the long list of geopolitical shocks that proved temporarily disruptive but had little lasting effect on markets.'
However, with Federal Reserve Chair Jerome Powell testifying before Congress Tuesday and tensions still running high, markets could turn on a dime.
'Markets breathed a sigh of relief following Trump's ceasefire declaration, but the celebration could be short-lived,' said Lukman Otunuga, senior market analyst at FXTM, in a note to investors. 'If tensions flare again or the ceasefire is violated, we could see a swift return to risk aversion – boosting safe havens like gold and pressuring global equities.'
The ceasefire makes it less likely that global oil supplies will be disrupted. Many investors have been worried that Iran could close the Strait of Hormuz, a critical waterway ferrying around a quarter of the world's oil supply, according to figures from the International Energy Agency.
That scenario – which would likely send oil prices skyward – now appears less of a threat.
Goldman Sachs has estimated that oil prices could blow past $100 a barrel if there is an 'extended disruption' to the strait.
Assuming the ceasefire holds, Brent crude could hover 'near the $70 per barrel level while clarity on a US-Iran deal emerges,' said Mukesh Sahdev, global head of commodity markets at Rystad Energy, a consultancy, Tuesday.
'The prospect of severe economic fallout from a potential blockade (of the strait) likely motivated both sides to agree to the ceasefire, if it is indeed genuine,' he wrote in a note.
While oil prices shot up after the Iran-Israel conflict began – touching a five-month high last week – they tanked Monday after Iran launched targeted and limited missile strikes on US bases in Qatar.
US crude tumbled 7.2% to settle at $68.51 a barrel, the biggest one-day drop since early April and one of its worst days over the past three years. Brent closed at $71.48 a barrel, down 7.2%, the steepest decline since August 2022 .
Matt Egan contributed reporting.
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