Oil Prices Fall Sharply Amid Easing Tensions Between Israel and Iran

Global oil prices have seen sharp price action. The Brent Crude prices fell as much as 5% in the evening session to below $90/bbl levels. However, prices saw slight recovery after that and Brent Crude is now trading above the 92/bbl. Several factors are impacting the crude price movement. While easing tension between Israel and Iran reduced fears of a wider disruption to energy supplies, a Reuters report suggesting US President Trump said Iranians shot down an Apache helicopter patrolling the Strait of Hormuz weighed on investor sentiment. US President Donald Trump on Tuesday said Iran ⁠shot ​down a US Apache helicopter that was patrolling ​the Strait ​of Hormuz ⁠overnight and vowed to respond, but ‌gave no other details. “I have just been informed by our Great Military ⁠that ⁠last night the Iranians shot down ⁠one ‌of ​our highly sophisticated Apache ‌Helicopters while patrolling over the ‌Strait ​of ​Hormuz,” Trump ​wrote in a social ​media post. “Nevertheless, the ⁠United States must, of necessity, respond to ‌this ⁠attack,” he added. On the other hand, both Israel and Iran have indicated they had halted direct attacks following an appeal by US President Donald Trump, who said negotiations were entering their final stages and that a clearer outcome could emerge within days. Israeli Prime Minister Benjamin Netanyahu said Israel would pause strikes but warned it would retaliate if Tehran launched further attacks. Iranian media reported a similar position. The prospect of a ceasefire prompted traders to unwind the geopolitical risk premium that had pushed oil prices higher in recent weeks. Analysts at energy advisory firm Ritterbusch and Associates said in a note that the market was moving lower as the latest conflict between Israel and Iran appeared to have been defused and as Trump continued to signal progress towards a broader settlement, Reuters reported. “The oil market is drifting lower … as the latest shooting match between Israel and Iran was diffused in favour of a ceasefire and as Trump continues to talk the market lower by suggesting that an end of the war with Iran could be reached in 2-3 days with negotiations in their final stages,” the note stated. Despite the easing tensions, uncertainty remains. Iran has warned that it could resume hostilities if Israel continues attacks on its ally, Hezbollah, in Lebanon. Israel on Tuesday struck the southern Lebanese city of Tyre, reportedly killing at least eight people. Markets are also watching developments around the Strait of Hormuz. Iran continues to restrict much of the shipping traffic through the strait, while Washington has imposed its own blockade on Iranian ports. Lower crude prices could provide some relief to inflationary pressures globally, as sustained high oil prices tend to raise fuel costs and keep interest rates elevated for longer.