Price of oil tumbles as global stocks rebound on two-week ceasefire

Dan Coatsworth, head of markets at AJ Bell, said: “Investors’ wish for a ceasefire has been granted, triggering a rally across financial markets and pulling down the oil price.

“The positive market reaction is understandable as a two-week ceasefire raises hope for a complete end to the conflict.

“Markets have been clouded by multiple kinds of uncertainty, from fears of higher inflation and rising interest rates to general unease over geopolitical relations.

“The ceasefire gives the world a moment to breathe and take stock of events. Unfortunately, there is no guarantee that everything will return to normal.

“The 14 per cent decline in the Brent Crude oil price to $94 a barrel puts energy prices in the right direction as far as businesses and consumers are concerned.

“However, it’s impossible to assume they will quickly return to the sub-$70 a barrel level seen before the Iran crisis began in March.

“There has already been considerable disruption to the flow of supplies and that might remain the case for some time, even if the Strait of Hormuz becomes fully functional again.

“Potential damage to infrastructure and production shutdowns in the oil and gas industry, together with ongoing uncertainty over what happens after the two-week ceasefire ends, suggest oil prices might stay higher for longer.

“Make no mistake – this is a pause in the proceedings and not a full resolution.

“That means any market rebound could quickly lose momentum unless there is clear progress with US and Iran talks.

“For now, investors are happy to take the glass half full perspective.

“They’re looking to play a shift in market sentiment and buy everything that’s been beaten up in recent weeks and sell what’s done well.

“That means oil producers, utility providers and tobacco stocks have been cut loose and housebuilders, airlines and banks have been snapped up.

“Economically sensitive sectors have struggled since March on fears over higher interest rates and a slowdown in business and consumer activity, so it makes sense that investors now see them as more attractive if there is hope for an end to the conflict.

“A lower oil price means the foot has been taken off the inflation pedal somewhat, but it doesn’t mean that inflation is no longer a problem.

“Consumers are already feeling the pain of higher oil prices when filling up their car or booking a flight, and the energy spike has gone on long enough to suggest more price hikes are coming on everyday items.

“Today’s retreat in the oil price is not deep enough to suggest that an inflation shock will be short-lived.

“Life is likely to get more expensive in the coming months, with or without a ceasefire.

“It’s just impossible to predict how long the higher cost of living environment will last.”