A pump jack and drilling rig south of Midland, Tex. Oil prices have fallen but remain above prewar levels, as physical oil markets remain tight.Eli Hartman/Reuters
Oil prices tumbled more than 15 per cent on Wednesday after Iran, the United States and Israel agreed to a two-week ceasefire that includes reopening the Strait of Hormuz to tanker traffic, though uncertainty over the agreement’s terms prevented deeper losses.
The countries announced the ceasefire deal late Tuesday, minutes before U.S. President Donald Trump was to begin a threatened bombing campaign to destroy Iran’s civilian infrastructure.
Iran said it will charge ships to travel through the strait, through which a fifth of the world’s crude oil and liquefied natural gas normally passes. However, details remain unclear and it is not yet known whether vessels will see the passage as safe.
Oil prices fell below US$100 a barrel in the biggest drop since the start of the pandemic, though pared losses through the session. International benchmark Brent crude closed US$14.52 lower at US$94.75 a barrel. West Texas Intermediate sank US$18.54 to settle at US$94.41 a barrel.
Prices have not fallen back to prewar levels, however. That shows the ceasefire has removed a panic premium from the price of oil, but not the risk premium, Rystad Energy warned in a market update. Physical markets remain tight, it noted.
That could last for an extended period, even as futures markets react to short-term diplomatic developments.
“On the physical side of things, nothing has really changed,” said Hamad Hussain, climate and commodities economist at London-based Capital Economics.
“It doesn’t appear that passage through the Strait of Hormuz has opened up. It doesn’t seem as if that’s changing any time soon, or it doesn’t look like traffic through the Strait of Hormuz is going to go back to prewar levels very quickly based on some of the reports that are coming out.”
Indeed, the Danish shipping company Maersk said it welcomed the possibility that transit through the strait may soon be possible, but there was not yet “full maritime certainty.”
“Any decision to transit the Strait of Hormuz will be based on continuous risk assessments, close monitoring of the security situation, and available guidance from relevant authorities and partners,” it said in a letter to customers.
Even if the strait opens up, it will take time for Gulf states to resume oil and gas production from wells that had been shut in or damaged by Iranian missile strikes, and tankers will take as long as three weeks to reach destinations in Asia, where shortages are most acute, Mr. Hussain said.
Terms of U.S.-Iran ceasefire deal remain unclear as some attacks continue
The effective closing of the Strait of Hormuz has already caused severe economic damage. With the war in its sixth week, some Asian customers, such as Thailand, the Philippines and South Korea, have instituted emergency measures, including four-day work weeks, work-from-home requests and fuel rationing as gasoline, diesel and jet fuel supplies have dwindled.
The spike in oil prices, meanwhile, has raised concerns about inflation around the world.
The conflict and Strait of Hormuz turmoil have also altered the LNG market, possibly for the long term, Poten & Partners analyst Jon McDonald said during a webcast on Wednesday.
LNG spot prices are likely to stay higher than just before war started in Iran, and there will be periods of pricing volatility, he said.
After the U.S. and Israel launched attacks on Iran on Feb. 28, benchmark LNG spot prices for European and Asia-Pacific markets doubled in March during the widening Persian Gulf conflict.
LNG spot prices slipped in late March and early April. They are forecast to continue decreasing in the weeks ahead if the Middle East ceasefire holds, but remain at elevated levels for the rest of 2026 and potentially through 2027.
Qatari LNG facilities in Ras Laffan, shown on March 2, were heavily damaged by Iranian attacks last month.Stringer/Reuters
Qatar, the world’s second-largest LNG exporter after the U.S. last year, halted its production in early March. Iran launched multiple attacks on the Ras Laffan LNG hub in Qatar, inflicting heavy damage last month.
Analysts and the shipping industry are raising concerns about the reliability of exporting through the Strait of Hormuz in the future.
“I think a question on everybody’s mind is how will Qatar restore confidence, right?” Mr. McDonald said, adding that vessel owners are “viewing the strait as a risky bet now.”
Shell PLC-led LNG Canada became this country’s first export terminal for the fuel when it started shipping from Kitimat, B.C., to Asia last June.
With a report from the Associated Press