Oil prices fell sharply on Monday after US strikes on Iran eased fears of a supply disruption, with Brent crude dropping below $70 a barrel for the first time in three weeks. The decline boosted shares of BP and Shell, lifting the FTSE 100 index.
Market Reaction
Brent crude, the international benchmark, fell 4.5% to $69.80 a barrel by midday in London, while US West Texas Intermediate crude slid 5% to $66.20. The drop came after the US launched limited strikes on Iranian military targets over the weekend, which analysts said were less severe than expected and unlikely to disrupt oil supplies from the Middle East.
“The strikes were carefully calibrated to avoid escalation, and the market is pricing in a lower risk premium,” said Giovanni Staunovo, an analyst at UBS. “The focus is now on whether Iran will retaliate, but for now, the supply outlook remains ample.”
Impact on Energy Stocks
The slide in oil prices boosted energy stocks, with BP shares rising 2.3% and Shell gaining 1.8%. The FTSE 100, which has a heavy weighting of oil and gas companies, climbed 0.7% to 7,650 points. Investors welcomed the lower oil prices as a potential boost to corporate profits and consumer spending.
“Lower oil prices are a net positive for the UK economy, as they reduce costs for businesses and households,” said Michael Hewson, chief market analyst at CMC Markets. “The FTSE 100 is benefiting from the relief rally, but the outlook remains uncertain if the situation escalates.”
Broader Market Trends
The oil price decline also weighed on other commodities, with gold slipping 0.3% to $1,950 an ounce. The US dollar strengthened against major currencies, while bond yields edged lower as investors sought safe-haven assets. Analysts said the market was still digesting the implications of the US strikes, which marked the first direct military action against Iran in years.
“The market is cautiously optimistic that the conflict will not broaden, but the risk of retaliation remains,” said Helima Croft, head of commodity strategy at RBC Capital Markets. “We could see volatility in oil prices in the coming days as traders monitor any Iranian response.”
Outlook
Looking ahead, traders will focus on US crude inventory data due later this week, as well as any diplomatic moves to de-escalate tensions. The Organization of the Petroleum Exporting Countries and its allies are also set to meet next month to discuss production levels. For now, the market is pricing in a lower risk premium, but the situation remains fluid.
