Oil prices drop as Israel agrees to ceasefire proposal

TOKYO - Oil prices sank more than 5% on Tuesday after Israel said it had agreed to US President Donald Trump's proposal for a bilateral ceasefire with Iran.

Shares in Asia were buoyant, as fears of an energy market shock eased following 12 days of war between Israel and its arch-foe. London, Paris and Frankfurt also rose at the open.

At around 0650 GMT on Tuesday, Brent was down 5.2% at $67.75 per barrel, while the main US crude contract WTI was 5.4% lower at $65.01 per barrel.

"A potential end to the conflict has been welcomed by market participants," wrote Lee Hardman at MUFG, who noted that Brent "has now almost fully reversed all of the gains since the conflict started".

"In the FX market a similar reversal is underway with the US dollar giving back recent gains. If Middle East risks now fade into the background as a market driver, it is more likely that the US dollar weakening trend will resume."

Crude prices had briefly spiked Monday morning on the prospect that Iran could retaliate to a weekend US attack on its nuclear facilities by throttling oil transport through the strategic Strait of Hormuz.

But they then tumbled as much as 7% when Iran said it had launched missiles at a major US base in Qatar, with oilfield assets unaffected.

'WAR PREMIUM'

"Tehran played it cool. Their 'retaliation' hit a US base in Qatar, loud enough for headlines, quiet enough not to shake the oil market's foundations," said Stephen Innes at SPI Asset Management.

"And once that became clear, the war premium came crashing out of crude."

The Israeli government said in a statement Tuesday that the country had "achieved all the objectives" in its war with Iran, adding that it had removed "an immediate dual existential threat: nuclear and ballistic".

"Israel will respond forcefully to any violation of the ceasefire," the statement said.

Tokyo ended the day 1.1% higher and Shanghai closed up 1.2%. Hong Kong was trading up 2.1% on Tuesday afternoon.

Seoul surged 3.0%, Taipei gained 2.1%, and Jakarta put on 1.3%, while Sydney closed up 1.0%.

The airline Virgin Australia climbed sharply as it re-entered the local share market, a dramatic comeback from near bankruptcy more than four years ago.

London gained 0.7% in early trade, with gains limited as shares in oil majors Shell and BP fell owing to the oil price drop, while Paris was up 1.5% and Frankfurt jumped 1.8%.

In forex markets, the dollar gave up gains after Federal Reserve Governor Michelle Bowman said she would support cutting interest rates at July's meeting if inflation holds steady.

The market currently expects the Fed to resume cutting interest rates in September.

Bowman indicated that "ongoing progress in tariff negotiations providing a less risky economic environment to adjust policy"," prompting the dollar to weaken, Wan said.

KEY FIGURES AROUND 0700 GMT

Tokyo - Nikkei 225: UP 1.1% at 38,790.56 (close)

Hong Kong - Hang Seng Index: UP 2.1% at 24,181.94

Shanghai - Composite: UP 1.2% at 3,420.57 (close)

Euro/dollar: UP at $1.1609 from $1.1581 on Monday

Pound/dollar: UP at $1.3586 from $1.3526

Dollar/yen: DOWN at 145.05 yen from 146.12 yen

Euro/pound: DOWN at 85.44 pence from 85.60 pence

West Texas Intermediate: DOWN 5.4% at $65.01 per barrel

Brent North Sea Crude: DOWN 5.2% at $67.75 per barrel

New York - Dow: UP 0.9% at 42,581.78 (close)

London - FTSE 100: UP 0.7% at 8,816.78