Oil prices have fallen sharply and stock markets bounced back as US President Donald Trump said the US-Israel war with Iran could be over soon.
The price of Brent crude was more than 8% lower at just under 91 US dollars a barrel in Tuesday morning trading, retreating from near-four year highs above 100 dollars a barrel in volatile trading on Monday.
Markets responded by recovering some of the recent ground lost in the sell-off, with the FTSE 100 Index up 1.6% soon after opening, up 165.3 at 10,414.8.
The Dax in Germany and France’s Cac 40 were up 2.3% and 1.6% respectively after Asian markets rallied higher overnight.
The oil price declines follow comments by Mr Trump that the war against Iran may be short-lived although he also threatened intensified action if Iran made any “attempt to stop the globe’s oil supply”.
Investor nerves were soothed as Mr Trump said the Iran conflict was “going to be a short-term excursion” despite Iran’s move to select a new hardline supreme leader.
Matt Britzman, senior equity analyst at Hargreaves Lansdown, said: “Global equity markets are still taking their cues from oil this morning – but the tone has notably improved after yesterday’s wild swings.
“What initially looked like a one-way surge in energy costs and the inflation headaches that come with it has started to stabilise, offering some much-needed breathing room.”
But experts warned oil prices and markets would remain volatile.
Susannah Streeter, chief investment strategist at the Wealth Club, said: “Given that the fighting is continuing and the key Strait of Hormuz remains impassable, worry is still percolating.
“Oil prices remain more than 25% higher than before the conflict began.
“Concerns that a severe inflationary shock could occur – which could see interest rates rise later this year – have abated.
“Even so, policymakers at the Bank of England are set to stay in wait-and-see mode and keep rates on hold for many months until the full repercussions for consumer prices become clear.”
Financial markets are now only pricing in an even chance of a rate cut by the end of the year – a sharp reversal of previous predictions which had seen the Bank cutting rates as soon as next week.
Neil Wilson, a senior strategist at Saxo, said: “Volatility will persist and we now should note risks from escalatory shocks which would hit bonds and stocks and force up oil and gas prices once more, but there is at last a sense of credible de-escalation, even if Iran might view things otherwise.
He added the “G7 stands ready to release oil reserves”, which has also helped calm nerves over oil prices.
