The price of oil has fallen sharply after US President Donald Trump said that the war in Iran would come to an end “very soon”.
Oil had reached almost $120 a barrel on Monday over fears that the conflict would cause lengthy disruption to energy supplies from the Middle East, but dropped back to around $93 following Trump’s comments.
Although crude prices are still significantly higher than they were before the war, stock markets rebounded with London’s FTSE 100 index opening up 1.3%.
The president said he thought “the war is very complete, pretty much”, although he later warned Iran to not block the Strait of Hormuz, a shipping route crucial to global oil and gas supplies.
“If Iran does anything that stops the flow of Oil within the Strait of Hormuz, they will be hit by the United States of America TWENTY TIMES HARDER than they have been hit thus far,” he said on social media.
The Islamic Revolutionary Guard Corps said “in response to Trump’s nonsense”, that Iran”s armed forces will “not allow the export of a single litre of oil from the region”.
Earlier on Monday, Trump told a news conference in Florida: “We took a little excursion because we felt we had to do that to get rid of some evil. Then, I think you’ll see it’s going to be a short-term excursion.”
During trading in Asia, Brent crude fell below $84 a barrel at one point before rebounding to $93.76. US West Texas Intermediate (WTI) crude fell 4% to $90.96 a barrel.
The cost of gas prices also dropped, with UK prices for month-ahead delivery falling by more than 10% to 123p a therm, well below Monday’s peak of 171p.
The fall in oil prices on Tuesday has given traders a moment to “exhale”, but energy markets remain in a state of “total tug-of-war”, said Alberto Bellorin from oil and gas investment firm InterCapital Energy.
Oil trading will “remain incredibly twitchy” and prices are likely to spike if the conflict escalates and fall if it seems to be easing, he said.
Share prices in Asia made gains as concerns about the economic impact of the conflict eased.
Japan’s Nikkei 225 closed up 2.9%, recovering some of Monday’s losses, while South Korea’s Kospi gained 5.4%.
Stock markets in the region had been hit hard the previous day on investor concerns that disruptions in the Gulf could mean higher inflation and rising interest rates.
The Strait of Hormuz is crucial to the global energy market as around a fifth of the world’s oil passes through the narrow waterway. But traffic through the narrow passage has all but halted since the war started more than a week ago.
The boss of Saudi Arabia’s Aramco, the world’s biggest oil exporter, has warned of “catastrophic consequences” for oil markets if the route remains blocked.
Amin Nasser said global stocks of oil were at the lowest for five years and the supply disruptions meant these would be used at a faster rate.
“The longer the disruption goes on… the more drastic the consequences for the global economy,” he said.
While the price of oil has fallen from Monday’s peak it is still around 20% higher than it was before the US and Israel launched airstrikes on Iran just over a week ago, said Park Kee Hyun from the S Rajaratnam School of International Studies.
Prices will remain “volatile” as the firms will charge a premium for shipments to account for any risk of the situation worsening, Park said.
Trump’s comments may suggest the war may end soon, but the bigger question is whether those remarks are followed by concrete changes in the conflict zone, he added.
G7 nations on Monday said they were ready to take “necessary measures” to address the global supply of energy in the light of surging oil prices.
A meeting between G7 leaders and the International Energy Agency (IEA) ended without a final decision on whether the nations would release oil from stockpiles, though the matter was discussed.
Robin Mills, chief executive of Qamar Energy, an energy consultancy based in Dubai, told the BBC that there was a reluctance to use this option too early as “once the strategic reserves are gone, they’re gone”.
However, he acknowledged it was a tough decision. “If you believe the war is over, as Donald Trump says, then you don’t need to use them. But if you believe the disruption is continuing, now is the time to put a bit of oil back and calm the market.”
UK Chancellor Rachel Reeves said on Monday the UK had used the G7 meeting to urge for “immediate de-escalation” in the Middle East and guaranteed security for vessels in the region.
“I stand ready to support a co-ordinated release of collective IEA oil reserves,” she said.
Source: BBC
