Oil prices fell to their lowest level in three months on Monday after the United States and Iran finalised a memorandum of understanding aimed at restoring shipping through the Strait of Hormuz, easing fears of prolonged disruption to global energy supplies.
Brent crude, the international oil benchmark, dropped more than 5% to below $83 per barrel as traders rapidly unwound the geopolitical risk premium that had driven prices above $120 during the height of the conflict.
US President Donald Trump said commercial shipping had already resumed through the strategically important waterway, which normally handles around 20% of global oil and gas exports.
In a post on Truth Social, Trump said vessels carrying oil were once again moving through the Strait of Hormuz using secure shipping routes, reinforcing market expectations that energy supplies could soon return to normal levels.
The sharp decline in oil prices helped fuel a strong rally on Wall Street. The Nasdaq Composite surged 2.4%, supported both by falling inflation expectations and continued enthusiasm surrounding SpaceX, whose shares jumped a further 8.7% at the open on their second day of trading.
The Dow Jones Industrial Average gained 1.2%, while the S&P 500 advanced 1.5% as investors welcomed the prospect of lower energy costs and reduced pressure on central banks to maintain restrictive monetary policy.
However, the fall in oil and gas prices created headwinds for London’s energy-heavy market. Shares in oil majors Shell and BP fell as much as 5.1% and 4.5% respectively, while European natural gas prices dropped 6.8%.
The weakness in energy stocks wiped an estimated £13 billion from the combined value of the FTSE 100’s major oil producers and left the UK benchmark trailing its international peers.
While stock markets across France, Germany, Spain and Italy gained more than 1%, the FTSE 100 rose only 0.1%, held back by the significant weighting of energy companies within the index.
The contrasting performance highlights how the same development can produce very different outcomes across markets. While lower energy prices have boosted growth-sensitive sectors such as technology, travel and consumer stocks, they have simultaneously reduced earnings expectations for oil and gas producers.
For investors, the focus now turns to the implementation of the US-Iran agreement and whether the reopening of the Strait of Hormuz can be sustained, potentially paving the way for further declines in energy prices and continued support for global equity markets.
