Gas price immediately drops 5 percent after peace agreement between US and Iran: lower oil price may be felt at the pump later this week | My Money

The announced peace agreement between the United States and Iran will cause a sharp drop in energy prices on Monday. Both oil and gas prices are falling on international markets after it was announced that both countries will sign a draft in Switzerland next Friday that should put a temporary end to military tensions in the Middle East. The lower oil price may also be felt at the pump later this week.

According to Pakistani Prime Minister Shehbaz Sharif, the US and Iran have agreed to immediately halt their military activities. The important Strait of Hormuz, which had been partly blocked in recent weeks, would also be fully opened to shipping again from Friday.

These prospects immediately provide relief on the energy markets. The European gas price fell by more than 5 percent to 44.32 euros per megawatt hour on the gas exchange in Amsterdam on Monday morning. This remains higher than before the outbreak of the conflict in the Middle East, when the price fluctuated around 32 euros per megawatt hour.

Oil prices also fell sharply. A barrel of Brent oil, the international benchmark price, lost more than 4 percent to $83.56. US WTI oil even became about 5 percent cheaper, trading at $80.63 per barrel.

The markets are mainly reacting to the expectation that oil and gas supplies from the Gulf region will again be able to flow without disruption. About a fifth of all oil traded worldwide passes through the Strait of Hormuz.

The reopening of the strait does not mean that trade will immediately return to normal. It could take months for relations between shipowners, insurers and refiners to be fully restored. In addition, many market parties developed alternative supply routes during the conflict.

“The market tends to view the reopening as a switch being flipped, but in reality it is a whole process,” explains Karobaar Capital chief investment officer Haris Khurshid. “Physical flows can restart quickly, but trust usually does not.”

Those who need to refuel and want to save money should wait another day: the lower oil prices could also be felt at the pump in the coming days. Fuel prices generally respond to fluctuations in the oil market with some delay. Whether and how sharply petrol and diesel will fall remains to be seen in the coming days.

The news was also positively received on the European stock exchanges. Frankfurt and Paris opened 1.78 and 1.60 percent higher respectively, while Brussels Bel20 gained about 0.5 percent. The broad European Stoxx Europe 600 index rose by 1.3 percent to a record level of 641.66 points. Investors are reacting with relief at the prospect of easing tensions in the Middle East and allowing energy supplies to flow more smoothly again.