Oil Prices Rise 1.3% on Iran-Israel Ceasefire Hopes

Oil prices saw a notable increase on Wednesday as traders assessed the likelihood of a new ceasefire between Iran and Israel holding firm. This development came as Asian markets steadied and the dollar fell 0.1% to 144.70 against the Yen. Brent crude futures rose by 1.3% to $67.99 per barrel, while the U.S. West Texas Intermediate climbed 1.4% to $65.24. Both contracts were trading near multi-week lows reached on Tuesday, following a brief spike to five-month highs over the weekend after the U.S. launched airstrikes on Iran’s nuclear facilities.

The ceasefire, which took effect on Tuesday, was signalled by leaders in Tehran and Jerusalem after 12 days of escalating conflict. Both sides moved quickly to lift civilian restrictions, each declaring victory in a conflict that initially threatened to spill into global oil markets. The fragile nature of the ceasefire, however, means that the situation remains delicate. While the immediate impact has been positive, there is a risk that tensions could flare up again, potentially leading to further disruptions in the oil market.

Investors are aware of this risk and are likely to remain cautious, monitoring the situation closely for any signs of renewed conflict. The market's reaction to the ceasefire highlights the sensitivity of global markets to geopolitical risks, particularly in regions that are critical to global energy supply. The narrow Strait of Hormuz, lying between Oman and Iran, remains a focal point for traders, as nearly one-fifth of the world’s daily oil consumption passes through this path.

Asian markets stabilized while the dollar dipped. Japan’s Nikkei and Australia’s S&P/ASX 200 were flat, while China’s CSI 300 eased 0.1%. U.S. stock futures showed little movement. Currency and bond markets reflected the easing risk of an oil-driven inflation spike. The U.S. two-year Treasury yield slid to 3.787%, its lowest since May 8, while the dollar index dipped 0.1% to 97.854. Against the yen, the dollar fell 0.1% to 144.70, and the euro gained 0.1% to $1.1625, approaching Tuesday’s peak of $1.1641—the highest level since October 2021.

Federal Reserve Chair Jerome Powell warned on Tuesday that rising tariffs could begin to push up inflation over the summer, remarks made during testimony before the House Financial Services Committee. Meanwhile, a separate report showed U.S. consumer confidence unexpectedly declined in June, pointing to a cooling labour market. According to the analyst's forecast, markets currently assign roughly an 18% probability of a Fed rate cut in July.

JP Morgan analysts noted that global energy prices are moderating following the Israel-Iran ceasefire. The base case for their oil strategists remains anchored by fundamentals, which indicate sufficient global oil supply. A preliminary U.S. intelligence review found that American strikes did not fully destroy Iran’s nuclear capacity, only setting the program back by a few months. That assessment undercuts President Trump’s earlier claim that Iran’s nuclear efforts had been “obliterated.”

David Oxley, chief climate and commodities economist at Capital Economics, said, “The Israel-Iran ceasefire is likely to prove fragile. But so long as both parties show themselves unwilling to attack export-related energy infrastructure and/or disrupt shipping flows through the Strait of Hormuz, we expect bearish fundamentals in the oil market to continue from here.”