Oil and Gas Prices Drop as Israel-Iran Ceasefire Hopes Grow

Energy markets calm following limited retaliation from Iran, easing cost-of-living concerns

Global Oil Prices Tumble on De-escalation Signs

Global oil prices have fallen sharply amid growing hopes for a ceasefire between Israel and Iran, reducing fears of major disruptions to global energy supplies.

• Brent crude spiked to $81 per barrel late Sunday, reacting to news of US airstrikes on Iranian nuclear sites.
• However, prices quickly reversed after Iran’s limited missile retaliation, which caused no damage due to advance warning provided to the US.

By Tuesday, Brent crude had dropped to $68 per barrel, marking an overall 11% decline over two days.

Gas Prices Remain High Amid Supply Pressures

While oil costs have dropped, UK natural gas prices have not followed suit as sharply:

• UK day-ahead natural gas prices were up over 25% month-on-month as of Monday.
• Europe's gas reserves remain low following a harsh winter, driving strong demand for liquefied natural gas (LNG), especially from Asia.
• The Strait of Hormuz, a critical route for 20% of global oil and 30% of LNG, remains a flashpoint, keeping risk premiums elevated for energy shipping.

Ceasefire Hopes Ease Cost-of-Living Fears

The decline in energy prices comes as a relief amid ongoing concerns about a fresh cost-of-living crisis, similar to what followed Russia’s 2022 invasion of Ukraine.

However, analysts caution that only a sustained ceasefire will lead to further drops in wholesale prices. Without it, the threat of shipping disruption remains high, particularly for gas.

Stock Markets React to Cooling Tensions

Global equity markets responded positively to signs of easing Middle East tensions:

• Germany’s DAX and France’s CAC 40 each rose over 1%.
• The FTSE 100, however, ended flat, weighed down by declines in:
  • Oil producers
  • Precious metals miners
  • Defensive stocks like gold, which slipped as demand for safe-haven assets eased

According to Russ Mould, investment director at AJ Bell:

“Markets will be closely watching for confirmation of a true ceasefire. Iran has not officially agreed to one, and the situation remains fragile.”

Travel Stocks Climb on Fuel Relief

In contrast, travel and tourism stocks rose, boosted by:

• Lower fuel cost expectations
• Reduced fear of escalation deterring international travel

This segment outperformed as investors bet on improved sentiment and operational cost savings.

Summary

• Brent crude down 11% to $68 amid Iran’s muted response to US strikes
• UK gas prices remain high due to storage shortages and LNG demand
• FTSE 100 underperforms Europe due to exposure to energy and gold
• Travel shares rise as fuel price fears ease
• Analysts warn: only a lasting ceasefire will secure long-term energy price relief

Source: (SKY.com)