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Oil prices sink over 8% as US-Iran pause fighting, global stocks rally
Oil prices plunge as US-Iran fighting pauses, easing supply fears, while global stocks rise and investors watch shipping risks in key energy routes.
Oil prices fell sharply on Monday after fighting between the United States and Iran paused, raising hopes that tensions in the Middle East could ease. The pause in fighting also lifted investor confidence, with stock markets rising as traders hoped energy supplies from the region would improve. Despite the calm, shipping routes in the Gulf remained risky, and vessels continued to face dangerous conditions. Oil prices had surged throughout most of July after the ceasefire between the US and Iran collapsed and fighting restarted.
Last week, Brent crude climbed above $100 a barrel after Yemen's Iran-backed Houthis threatened to block Saudi Arabia's ports in the Red Sea, expanding the conflict. President Donald Trump's decision to avoid, at least for now, a major escalation of the war improved market sentiment and renewed hopes for a diplomatic solution. Donald Trump's UN envoy said the US president was "giving talks some space".
Oil prices fall sharply
Brent crude, the global oil benchmark, dropped more than 8% to around $89 a barrel for September delivery. The more actively traded Brent contract for October delivery also fell by a similar amount to around $85 a barrel. US benchmark West Texas Intermediate (WTI) crude fell more than 7% to roughly $82 a barrel for September delivery.
The fall in oil prices came as traders reacted positively to the pause in military action between the US and Iran. However, analysts said markets remain focused on disruptions in key shipping routes, especially the Strait of Hormuz and the Bab al-Mandab Strait.
Middle East conflict still worries markets
The United States and Iran resumed hostilities earlier this month after Iran attacked ships travelling through the Strait of Hormuz, ending a fragile truce. The renewed attacks triggered a cycle of retaliation that pushed crude oil prices sharply higher. Although the latest pause reduced immediate fears, experts warned that the conflict has not ended.
Kathleen Brooks, research director at XTB, said, “Although the situation in the Middle East has calmed, it has not been resolved, and it could make a decline below $85 per barrel tricky at this stage”, according to Yahoo Finance.
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Shipping remains disrupted
Shipping traffic through the Strait of Hormuz stayed near its lowest level in more than two months despite the pause in fighting. According to maritime data firm Kpler, only 11 vessels passed through the Strait of Hormuz on Sunday, compared with an average of more than 130 ships a day before the war.
The number of ships increased slightly from six on Saturday but remained well below normal levels. The Houthi blockade threats against Saudi ports forced several Saudi vessels heading toward the Bab al-Mandab Strait to change course. Some Saudi ships were redirected through the Suez Canal instead of using the Red Sea route.
Using the Suez Canal and sailing around the Cape of Good Hope adds about four weeks to journeys carrying Saudi crude to Asia. It was still too early to fully measure how much the Houthi threats would affect Red Sea shipping. Analysts warned that if more ships avoid the Bab al-Mandab Strait, global energy supplies could tighten further, according to New York Times. At least three oil tankers were attacked in the Red Sea last week, including one reported late Friday.
Stock markets rise
Global stock markets moved higher as investors welcomed the temporary pause in the conflict. US S&P 500 futures rose 0.9%, indicating Wall Street was expected to open higher. Chinese stock indexes gained more than 1% on Monday. Japan's Nikkei 225 index ended the day 0.5% higher.
In Europe, the Stoxx 600 index rose 0.7%. Frankfurt's stock market climbed more than 1.5%, while London and Paris also traded higher. Asian markets, including Tokyo, Seoul, Hong Kong and Shanghai, all finished in positive territory, as noted by Yahoo Finance.
Inflation and central banks in focus
The drop in oil prices eased concerns that inflation could rise again because of expensive energy. Lower inflation worries also reduced fears that central banks might raise interest rates again. The US Federal Reserve is widely expected to leave interest rates unchanged at its policy meeting on Wednesday.
The Bank of England is also expected to keep rates unchanged on Thursday. Jim Reid, managing director at Deutsche Bank, said, “Policymakers face a difficult trade-off between evidence that inflation had been moderating and growing signs that higher oil prices could create a more persistent inflation shock”, according to Yahoo Finance.
Corporate earnings also in focus
Apart from geopolitical developments, investors are also watching a busy week of corporate earnings. South Korean chipmakers SK hynix and Samsung, along with Japan's Kioxia, are scheduled to report results this week. US technology giants Microsoft, Meta, Apple and Amazon are also set to release earnings, with investors closely watching their future spending plans and outlook.
China chipmaker grabs attention
Chinese memory chipmaker CXMT surged more than 500% during its Shanghai stock market debut before ending the session up 465%. According to Bloomberg News, the company raised $9.8 billion in its initial public offering, making it China's biggest mainland technology share sale.
Gasoline prices remain high
Despite the sharp drop in crude oil prices, US gasoline prices stayed elevated. According to AAA, the national average price for a gallon of regular gasoline remained at $4.11 on Monday, unchanged from the previous two days.
Gasoline prices had climbed back above $4 a gallon last week after fighting between the US and Iran resumed. Experts noted that retail fuel prices usually do not move immediately with crude oil prices and often change after a delay of several days. The average diesel price remained at $5.30 a gallon, around 41% higher than when the conflict began.
