Oil prices drop: Brent at $95, WTI at $91 on hopes for Mideast peace deal — stocks rise

Oil prices tumbled early on Wednesday on rekindled hopes for a deal to end the Middle East war and reopen the Strait of Hormuz.

Overnight on Tuesday, Wall Street's main indices climbed, with both the S&P 500 and the Nasdaq now back at levels from before the US and Israel began bombing Iran on February 28.

European equity markets also rose, although London advanced only 0.3 percent as the retreat in Brent Crude to below $95 a barrel weighed on the shares of energy majors BP and Shell.

Japan's Nikkei opened higher on Tuesday, after leading stock markets closed Tuesday with sizeable gains, while the dollar, seen as a haven in times of market turmoil, dropped against its main rivals.

Progress in Lebanon-Israel talks

Investors greeted US-mediated talks in Washington that set a plan for direct negotiations between Israel and Lebanon. 

The United States is pressing for a halt to the conflict between Israel and Hezbollah, fearing it could derail the two-week ceasefire in Washington's war with Iran after talks with Tehran in Pakistan failed to achieve a breakthrough.

The progress on Lebanon-Israel helped US equities extend Monday's rise after President Donald Trump said he had been contacted by Iran officials eager for a deal. Investors are "pricing in victory," said analyst David Morrison at Trade Nation.

'A question of days'

He said many believe the end of the conflict with Iran is a question of days, weeks or months rather than years.

"Nobody wants to be under-exposed to risk assets, let alone be short, should the war suddenly conclude, or even if the Strait of Hormuz was unblocked," Morrison said.

But Tom Cahill, chief investment officer at Ventura Wealth Management, said the market is "overreacting" in rising so much.

Market 'overreacting'

"There are still a lot of question marks as to whether a true agreement is to be had between the United States and Iran," said Cahill, who also worries that companies will cite the war as a factor in lowering their earnings forecasts.

Surging oil prices are weighing on demand.

The International Energy Agency warned that demand for crude in the second quarter this year would likely see the biggest slump since the Covid pandemic slammed the global economy in 2020.

Surging prices will force many countries and industries to curb oil use, and "demand destruction will spread as scarcity and higher prices persist," the agency said in its monthly report.

Large banks JPMorgan Chase, Citigroup and Wells Fargo all reported higher quarterly profits, pointing to continued resilience among US consumers despite increased geopolitical uncertainty.

But of the three large US lenders, only Citigroup pushed higher.

French luxury conglomerate LVMH reported Monday that sales fell six percent in the first three months of the year, saying the war in the Middle East depressed business in the region.

Its shares spent most of the day in the red, but finished the day with a small gain.

Key figures at 2020 GMT

Brent North Sea Crude: DOWN 4.6 percent at $94.79 a barrel

West Texas Intermediate: DOWN 7.9 percent at $91.28 a barrel

New York - Dow Jones: UP 0.7 percent at 48,535.99 (close)

New York - S&P 500: UP 1.2 percent at 6,967.38 (close)

New York - Nasdaq Composite: UP 2.0 percent at 23,639.08 (close)

London - FTSE 100: 0.3 percent at 10,609.06 (close)

Paris - CAC 40: UP 1.1 percent at 8,327.86 (close)

Frankfurt - DAX: UP 1.3 percent at 24,044.22 (close)

Tokyo - Nikkei 225: UP 2.4 percent at 57,877.39 (close)

Hong Kong - Hang Seng Index: UP 0.8 percent at 25,872.32 (close)

Shanghai - Composite: UP 1.0 percent at 4,026.63 (close)

Euro/dollar: UP at $1.1797 from $1.1759 on Monday

Pound/dollar: UP at $1.3564 from $1.3506

Dollar/yen: DOWN at 158.84 yen from 159.45 yen

Euro/pound: DOWN at 86.93 pence from 87.06 pence

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© Agence France-Presse