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Crude oil prices showed a sudden reversal in the domestic and international markets as US President Donald Trump announced a temporary two-week ceasefire, which led to the reduction of supply fears. Crude oil futures for 20th April on Multi-Commodity Exchange (MCX) fell by 16.5% to Rs. 8,090 per barrel, far below the psychological 10,000 mark.
West Texas Intermediate (WTI) crude futures fell around 16% to $95 per barrel, slipping below the key $100 mark. Brent crude futures dropped 14.03% to $93.94 per barrel, while COMEX crude prices also experienced major corrections.
The key trigger of the crash is a two-week ceasefire, under the condition that Iran will open up the Strait of Hormuz, a major passageway that handles around 20% of global oil and LNG supply.
Markets already priced in a worst-case scenario, which drove the oil prices high. The de-escalation, however, caused a swift unraveling of this geopolitical risk premium.
The volume of trading also increased, with over 240,000 Brent contracts being traded in the first hour of the announcement, a sign of aggressive repositioning of institutional traders.
Although the price dropped drastically, crude prices remain considerably high in contrast to the pre-conflict times. WTI crude is still over 40% above late February levels, showing that geopolitical risk is not eliminated.
The threat of transit fees on oil shipments on the Strait of Hormuz and the diplomatic talks that are still underway keep volatility high.
The decline in oil prices has wider macroeconomic consequences. The decrease in the prices of energy has reduced the inflation expectations and, hence, weakened the US dollar and increased risk assets.
This already benefited precious metals, particularly gold and silver, which rallied in response to easing geopolitical uncertainty.
Also Read: Gold Price Today: MCX Gold Prices Rally Amid Two-Week Ceasefire in the Middle East
Analysts indicate that in case the ceasefire continues past the first two weeks and turns out to be a long-term solution, then oil prices might fall even further.
Brent crude will likely hit the $85 mark, and short-term support is at $90, and long-term resistance is at $100.
The general framework is vulnerable to geopolitical processes. A breakdown in talks or the outbreak of a new conflict would soon drive prices once again.
