Global oil prices dropped sharply on Wednesday after news of a planned two week ceasefire between the United States and Iran raised hopes of easing tensions in the Middle East.
Brent crude futures fell as much as 16 percent in early Asian trade, touching $91.70 per barrel. This came after prices had settled at $109.27 a day earlier, reflecting a sudden shift in market sentiment.
The decline follows signs that both sides may move towards talks aimed at ending the conflict. The pause in hostilities has also reduced fears of immediate disruption, especially after earlier threats from US President Donald Trump had raised concerns about a wider escalation.
Markets are now betting that energy flows through the Strait of Hormuz could resume if negotiations make progress. The vital waterway had been at risk following recent military action, raising alarm over global supply as nearly one fifth of the world’s oil and gas shipments pass through it.
Uncertainty remains despite relief
Despite the initial optimism, uncertainty continues to weigh on the outlook. Talks expected to begin in Pakistan on Friday are likely to face major challenges, with both sides holding firm positions on key issues, including control of the strait and Iran’s nuclear programme.
Even if progress is made, the impact on physical oil markets may not be immediate. Supply chains have already been disrupted, particularly in Asia, and the effects are expected to linger for months.
The strain is visible in pricing decisions by major producers. Saudi Aramco has sharply increased its official selling prices for May shipments, with its benchmark Arab Light crude now carrying a record premium over regional benchmarks.
This move reflects tight supply conditions and strong demand among Asian refiners, many of whom are struggling to secure enough crude.
Asian buyers face rising pressure
Higher prices are also reshaping trade flows. China remains the largest buyer of Saudi oil, taking a significant share of shipments in April. However, the steep rise in prices for May cargoes may push Chinese refiners to look for cheaper alternatives from Russia, Africa and South America.
This could open up more supply for other Asian economies such as Japan and South Korea, which have seen imports from Saudi Arabia drop sharply in recent months.
Still, the broader picture remains uneven. While wealthier nations are likely to manage the disruption by paying higher prices, developing countries in Asia and Africa may face fuel shortages and economic strain.
In the coming weeks, much will depend on whether negotiations lead to a lasting agreement. Until then, markets are expected to remain volatile, with prices reacting quickly to any shift in the fragile geopolitical situation.
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