Brent crude, the global oil benchmark, fell nearly 3% to $89.66 on Tuesday morning, its lowest level since 31 August, after US President Donald Trump said that the war on Iran is "effectively over" and that military action was not necessary "at this point". The fall followed a near 6% drop on Monday as signals emerged that the conflict might be nearing an end. During a White House press conference, Trump told reporters that Israel and Gulf allies were well protected from Iran and that an escalation was not needed, adding that the US remained "locked and loaded, ready to go for any reason".
Stock markets responded positively to the easing tensions. Europe's benchmark Stoxx 600 index gained 0.9% to 662.54, hovering near a record high hit in early August. In London, the FTSE 100 index climbed 45 points, or 0.4%, to 10,828. Airline stocks rose amid hopes that lower fuel costs could follow, with Lufthansa up 1.8% and Air France-KLM up 1.2%. However, oil companies suffered, with BP down 1.7% and Shell down 1.5%.
Daniela Hathorn, a senior market analyst at Capital.com, said markets were benefiting from improved geopolitical outlook. However, she cautioned that the Federal Reserve would need more evidence of slowing inflation before reconsidering its policy stance, with October US inflation data released at 1.30pm GMT. She noted that lower energy prices could help ease inflation expectations but that underlying macroeconomic and corporate risks remained unresolved.
For UK drivers, the decline in wholesale oil prices is expected to continue feeding through to petrol pumps. The AA said the average UK petrol price had fallen 5p a litre since early October to 169.7p a litre, with wholesale markets indicating that another 10p reduction should be on the way.