Oil prices plunged below $95 a barrel and stock markets climbed worldwide Wednesday after President Donald Trump announced a two-week ceasefire with Iran, stepping back from a threat to destroy Iran. The S&P 500 rose 2.5% and the Dow Jones Industrial Average jumped 1,325.46 points, while the Nasdaq composite surged 2.8%, as traders priced in the prospect that oil tankers could again exit the Persian Gulf.
Trump’s ceasefire announcement came less than 90 minutes before a deadline he set for Iran to open the Strait of Hormuz and allow oil tankers to leave the Persian Gulf. Still, market gains faded somewhat as the day progressed, with investors weighing uncertainty that has repeatedly produced sharp reversals since the war began.
Benchmark U.S. crude dropped 16.4% to settle at $94.41 a barrel after it nearly fell to $91 earlier in the morning. Brent crude fell 13.3% to settle at $94.75 per barrel, after briefly topping $119 at the height of earlier worries about the Iran war; Brent remained above its roughly $70 level from before the war.
Despite White House comments that the strait’s closure reported in Iranian state media was unacceptable, Iran closed the Strait of Hormuz again Wednesday in response to Israeli attacks in Lebanon, according to the account of the day’s market context. The oil market’s next move, analysts said, depended on whether tankers could begin exiting the strait and how easily they could pass, including whether they could do so without disruption.
Windward, a maritime intelligence firm that tracks international shipping, said all ships transiting the strait still had to coordinate safe passage with Iranian authorities and that authorities were requiring tolls of up to $1 a barrel for outbound oil, paid in cryptocurrency. The report also said the largest supertankers can carry up to 3 million barrels of crude.
Investors also focused on rate expectations tied to oil, with Treasury yields falling as easing oil prices were seen as giving the Federal Reserve room to resume interest-rate cuts later this year. The yield on the 10-year Treasury fell to 4.29% from 4.33% late Tuesday, lowering the pressure that higher oil prices had added when traders feared the Fed might need to raise rates to curb inflation.
In Asia, markets rose sharply on Wednesday, with South Korea’s Kospi up 6.9%, Japan’s Nikkei 225 up 5.4%, and Hong Kong’s Hang Seng up 3.1%. European indexes climbed as well, with Germany’s DAX up 5.1% and France’s CAC 40 up 4.5%.
On Wall Street, companies with large fuel bills gained as some losses tied to worries about high oil prices eased. United Airlines rose 7.9%, and cruise operator Carnival climbed 11.2%; Delta Air Lines gained 3.7% after reporting stronger results for the latest quarter than analysts expected, and the report said Delta CEO Ed Bastian said demand for flights remained strong and that the company was making moves to offset higher fuel bills.
Advisers also expressed cautious optimism tied to the ceasefire. “There is a reason to be optimistic, but it is still too early to tell, because, as you know, after all, it is Trump,” said Takashi Hiroki, chief strategist at MONEX. Brian Jacobsen, chief economic strategist at Annex Wealth Management, asked whether the ceasefire was “just kicking of the can down the road, moving the goalposts, TACO Tuesday, or whatever metaphor we’d like,” and added, “Who knows? But it’s good enough for now to elicit a positive response from the markets.”