Oil prices plunged on Tuesday to their lowest level in more than a week after Donald Trump announced a ceasefire between Israel and Iran, easing fears of supply disruptions in the Middle East, a key region for global oil production.

This morning, Brent crude was down 3.5% at around $68 a barrel, below the level prevailing before the start of the Israeli offensive on June 13.

Source: MarketScreener

On Monday, Donald Trump announced that Iran and Israel had reached a comprehensive ceasefire agreement. Under the terms of the agreement, Iran was to implement the truce immediately, with Israel following suit within 12 hours. If both sides comply with these commitments, the war will officially end after 24 hours, bringing to a close a conflict that has lasted 12 days.

Donald Trump described the agreement as a "complete and total ceasefire," intended to end the clashes between the countries.

This is obviously good news for the financial markets. The US bombing of oil infrastructure over the weekend had raised fears of further escalation. In the end, Iran's response was measured and the announcement of the ceasefire has finally eased tensions.

Back to basics

Until now, investors were concerned not only about the impact on Iranian production (the third largest producer within OPEC), but also about the possible closure of the Strait of Hormuz. This narrow and strategic maritime passage between Iran and Oman in the Gulf carries between 18 and 19 million barrels of oil and petroleum products every day, accounting for nearly one-fifth of global consumption.

The prospect of a disruption in traffic in this vital corridor raised fears that prices would surge, with some strategists even suggesting a possible return to triple-digit levels. However, the rise in prices was ultimately fairly contained, peaking at $80 at the beginning of the week.

The pressure on prices was limited because market fundamentals remain fragile. OPEC recently increased its production, fueling fears of a surplus. The latest reports from OPEC and the International Energy Agency confirm that global supply remains sufficient to meet current demand.

Tensions therefore appear to be easing, at least for now. It remains to be seen whether the ceasefire will hold and whether this conflict will remain, in the words of Donald Trump last night, "the 12-day war."