Oil prices fell for a fourth consecutive session on Thursday after the United States and Iran formally signed a peace agreement that will reopen the Strait of Hormuz and restore confidence in global energy supplies.
The decline in crude prices reflects growing market expectations that the agreement will significantly reduce geopolitical risks that had driven oil higher during more than three months of conflict between the two countries.
Benchmark Brent crude dropped 2.2 per cent to $77.83 per barrel, while West Texas Intermediate fell 2.4 per cent to $74.98 per barrel. Since reports of a possible truce emerged last week, both contracts have lost more than 15 per cent of their value.
The breakthrough came after US President Donald Trump and his Iranian counterpart signed a memorandum of understanding at the end of a diplomatic process facilitated by Pakistan.
Confirming the development, Trump told reporters that the agreement had been signed, while Iranian authorities also announced the completion of the deal.
A central feature of the accord is the immediate reopening of the Strait of Hormuz, one of the world's most important oil transit routes. The strategic waterway handles about 20 per cent of global crude shipments and had faced severe disruptions following the outbreak of hostilities in February.
Pakistan's Prime Minister, Shehbaz Sharif, said Iran would reopen the strait while the United States would simultaneously remove its naval blockade, marking the first major step toward restoring normal commercial activity in the Gulf.
The agreement also provides for the easing of US oil sanctions on Iran and support for a $300 billion reconstruction initiative. In return, Tehran has agreed to dilute its enriched uranium stockpile while broader negotiations continue.
Energy analysts said the deal has removed much of the uncertainty that had fuelled a sharp increase in oil prices earlier this year.
According to market observers, traders are now reassessing the risk of supply disruptions, with expectations growing that oil exports from the region will return to normal levels in the coming weeks.
The fall in crude prices is likely to be welcomed by governments and consumers worldwide, many of whom have faced renewed inflationary pressures linked to higher energy costs.
However, investor sentiment remained cautious as attention shifted to the United States Federal Reserve and the prospect of further interest rate increases.
The Fed kept rates unchanged at its latest meeting but signalled that additional tightening could still be necessary to tackle persistent inflation.
Speaking after his first policy meeting as Federal Reserve chairman, Kevin Warsh said bringing inflation under control remained a priority, noting that elevated prices continue to weigh on American households.
The central bank's latest assessment prompted investors to trim expectations of imminent rate cuts, despite concerns about slowing global growth.
The mixed outlook contributed to varied performances across international stock markets.
South Korea's Kospi index led gains in Asia, rising more than two per cent to surpass the 9,000-point mark for the first time, supported by strong demand for technology stocks linked to the artificial intelligence sector.
Japan's Nikkei 225 also reached a record closing high above 71,000 points, while shares advanced in Singapore, Taiwan, India and the Philippines.
Elsewhere, markets in Hong Kong, Shanghai, Sydney, Wellington, Bangkok and Jakarta ended lower as investors weighed the implications of tighter monetary policy in the world's largest economy.
European markets were similarly mixed, with Frankfurt and Paris posting gains while London's FTSE 100 slipped into negative territory.
Analysts said the direction of oil prices and financial markets in the coming weeks will depend largely on the successful implementation of the US-Iran agreement and the pace of inflation across major economies.
For now, however, the reopening of the Strait of Hormuz has provided investors with a measure of relief and reduced fears of a prolonged energy supply crisis.
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