Oil and gas prices fell sharply on Tuesday after US President Donald Trump said that the war in Iran was “very complete, pretty much”.
Crude almost reached $120 a barrel on Monday over fears that the conflict would cause lengthy disruption to energy supplies from the Middle East, but dropped back to below $90 following Trump’s comments.
Although oil prices are still significantly higher than they were before the war, global stock markets rebounded.
The boss of Saudi Arabia’s Aramco, the world’s biggest oil exporter, has warned of “catastrophic consequences” if the Strait of Hormuz, a shipping route crucial to global energy supplies, remains blocked.
About a fifth of the world’s oil usually passes through the narrow waterway, but traffic has all but halted since the war started more than a week ago.
Aramco’s chief executive, Amin Nasser, warned that global stockpiles of oil were at the lowest for five years and the supply bottleneck meant these would be used at a faster rate.
“The longer the disruption goes on… the more drastic the consequences for the global economy,” he said.
The volatility in the oil market continued on Tuesday.
At one point, the benchmark price plunged to $82 per barrel after US Energy Secretary Chris Wright posted on X that the US had successfully escorted an oil tanker through the Strait of Hormuz.
However, it soon jumped back to $86 after the post disappeared from his profile.
The White House later confirmed the US Navy has not escorted any tankers through the crucial Gulf passage.
The conflict could mean UK inflation ends the year closer to 3%, higher than the current 2% forecast, should energy prices stay as they are, the UK government’s official forecaster warned on Tuesday.
Meanwhile, the International Energy Agency (IEA) held a second meeting with G7 nations on Tuesday to discuss options for stabilising the global oil market, including releasing millions of barrels of crude from countries’ stocks.
On Monday, Trump told a news conference in Florida: “We took a little excursion because we felt we had to do that to get rid of some evil. Then, I think you’ll see it’s going to be a short-term excursion.”
He later wrote on social media: “If Iran does anything that stops the flow of Oil within the Strait of Hormuz, they will be hit by the United States of America TWENTY TIMES HARDER than they have been hit thus far.”
The Islamic Revolutionary Guard Corps said “in response to Trump’s nonsense”, Iran’s armed forces will “not allow the export of a single litre of oil from the region”.
Trump’s comments raised hopes that the war would not be drawn-out, and Brent crude fell to $88.80.
However, it is still much higher than it was before the US-Israel war with Iran began on 28 February when Brent was priced at around $73 a barrel.
The surge in oil prices since the war began has been feeding through to pump prices in the US and the UK.
In the US, average petrol prices have risen above $3.50 per US gallon from about $2.92 a month ago, while diesel had risen from $3.66 to $4.78 over the same period, according to the American Automobile Association.
In the UK, average UK petrol prices have hit 138.95p a litre while diesel has hit 155.12p, having risen by 6.12p and 12.74p respectively since the end of last month, according motoring firm the RAC.
Gas also dropped, with UK prices for month-ahead delivery falling sharply to 119p a therm, well below Monday’s peak of 171p.
The fall in oil prices has given traders a moment to “exhale”, but energy markets remain in a state of “total tug-of-war”, said Alberto Bellorin, founder and managing director oil and gas investment firm InterCapital Energy.
Oil trading will “remain incredibly twitchy”, he said, and prices are likely to spike if the conflict escalates and fall if it seems to be easing.
