Global oil prices plunged on Tuesday, continuing a sharp two-day decline as investors reacted to signs of stability in the Iran-Israel ceasefire, coupled with comments from U.S. President Donald Trump signaling a possible easing of sanctions against Tehran.
Brent crude and West Texas Intermediate (WTI) futures each fell nearly 5% in volatile trading, extending Monday’s 7% slide. Traders responded swiftly to growing confidence that military tensions in the Middle East, particularly over oil supply disruptions, were beginning to subside.
“This morning’s ceasefire further reduced the perceived threat to Middle Eastern oil supply routes,” said David Morrison, senior market analyst at Trade Nation. The market, he noted, is rapidly unwinding the risk premium previously priced into oil contracts.
Diplomatic Signals Calming Markets
The drop followed public statements from Iranian President Masoud Pezeshkian, who reiterated Tehran’s commitment to the truce if Israel also complies. Israel confirmed it had halted further strikes after a direct conversation between President Trump and Prime Minister Benjamin Netanyahu.
Tensions briefly flared after both sides accused the other of minor violations, but the ceasefire appears to be holding. President Trump issued a stern warning to both nations to honor the agreement, further reinforcing market optimism.
In a move seen as potentially softening Washington’s stance, Trump also suggested that China may continue purchasing Iranian oil, signaling a looser enforcement of U.S. sanctions. The remark added to expectations of rising global oil supply.
Economic Impact and Market Reaction
Investors viewed the decline in oil prices as a positive signal for global inflation. With energy costs falling, pressure on central banks to maintain higher interest rates may ease, supporting consumer spending and potentially lifting economic growth.
Meanwhile, the Strait of Hormuz, a vital chokepoint for nearly 20% of the world’s oil supply, remains open and unaffected by the conflict, alleviating fears of supply disruptions.
Equity markets rallied alongside the oil drop, with investors welcoming relief from inflationary pressures and a cooling geopolitical climate.
