International benchmark Brent crude futures tumbled nearly 8 percent to close at $101.27 per barrel Wednesday on rising optimism that the U.S. and Iran were close to an agreement to end the conflict that has choked global energy supplies.
"A deal that normalises oil flows through the Strait of Hormuz is crucial," Warren Patterson, head of commodities strategy at Dutch bank ING, said in a research note. "Roughly 13 mb/d of disrupted supply is being largely offset by inventory, which is clearly declining rapidly. This leaves the market more vulnerable with each passing day."
The potential for a breakthrough in peace talks sent shares of major energy producers plunging. In Hong Kong trading, PetroChina (00857.HK) shares slumped 7.1 percent to HKD10.85, while coal producer Yankuang Energy (01171.HK) fell 7.2 percent. Conversely, airline stocks skyrocketed on the prospect of lower jet fuel costs. Cathay Pacific Airways (00293.HK) rallied 4.5 percent, and Air China (00753.HK) gained 4.6 percent.
The sell-off in oil comes as surging energy costs were already creating demand destruction globally, according to Azimut Group's co-head of fixed income Nicolo Bocchin, who warned that even if the waterway reopens, normalization in shipping and trade flows would still take "weeks and weeks." The conflict had left roughly 23,000 seafarers stranded in the Persian Gulf, according to the Trump administration.
Two U.S. officials and other sources briefed on the matter told Axios that the White House believes it is nearing a one-page, 14-point memorandum of understanding to end the war. While nothing has been agreed to, the sources indicated it was the closest the two sides had been to a deal since the conflict began. A spokesperson for Iran's Foreign Ministry confirmed they were "evaluating" the proposal.
However, President Donald Trump expressed skepticism that an agreement would be finalized, threatening to resume military strikes at a "much higher level and intensity" if Iran did not accept the proposal. The statement came just a day after the U.S. temporarily halted "Project Freedom," a military effort to escort commercial vessels through the Strait of Hormuz, citing progress in the negotiations.
The sharp drop in crude prices provided immediate relief for energy-intensive industries that have been battered by high fuel costs. The rally in Asian airline stocks, including China Southern Air and China Eastern Air, reflected investor bets that lower oil prices would directly boost profitability. Other major energy firms also saw significant declines, with CNOOC (00883.HK) falling 4.8 percent and China Oilfield (02883.HK) tumbling 5.7 percent.
This article is for informational purposes only and does not constitute investment advice.
