Oil prices plunged in early trading on Wednesday after a positive development in the US-Iran conflict, with President Donald Trump agreeing to a two-week suspension of attacks.
The move was made in exchange for Iran's commitment to allow safe passage through the Strait of Hormuz, easing concerns about global oil supply disruptions.
Benchmark crude oil prices fell sharply, with West Texas Intermediate (WTI) falling more than 15% to around $96.6 a barrel. Brent fell more than 14% to around $93.9 a barrel, reflecting the market's swift reaction to the geopolitical developments.
The move put WTI on track for its worst daily performance since April 2020, marking a sharp shift in sentiment from concern to hope for a supply recovery.
The ceasefire is contingent on Iran agreeing to fully, promptly and safely reopen the Strait of Hormuz. The US has also accepted a 10-point proposal from Iran as the basis for negotiations to finalize a deal within two weeks.
Iranian Foreign Minister Seyed Abbas Araghchi said Tehran was ready to allow safe passage through the Strait for the duration of the ceasefire, subject to military coordination and technical factors.
The ceasefire came just hours before a deadline set by Trump, who had previously threatened more aggressive military action if Iran failed to reopen the route.
The decision was also influenced by Pakistan's role as a mediator, after Prime Minister Shehbaz Sharif requested a delay to allow talks to continue.
Oil exports through the Strait of Hormuz have been severely affected by attacks on commercial ships, triggering the largest supply disruption in history. The route is crucial as it handles about 20% of global oil supplies.
Throughout the conflict, prices of crude oil and other energy products such as diesel and jet fuel have risen sharply, with the risk of global supply shortages if the route continues to be disrupted.
However, with recent developments, markets are now seeing the potential for a short-term recovery in supply, temporarily depressing oil prices.
