The cost of benchmark Brent crude dropped as low as 79.61 dollars a barrel at one stage.
Oil prices slid below 80 US dollars a barrel at one stage on Wednesday as US President Donald Trump said the Strait of Hormuz shipping route could be reopened as soon as Friday under his peace deal with Iran.
The cost of benchmark Brent crude dropped as low as 79.61 dollars a barrel, down more than 4% and easing back close to levels seen before the US-Israel war on Iran.
Brent crude stood at just under 73 dollars a barrel on February 27, the day before the conflict started.
Oil prices were sent soaring to 120 dollars a barrel at one stage, but have dropped sharply since Mr Trump heralded a peace deal overnight on Sunday.
The US president has said the deal would see oil flow freely again through the vital Strait of Hormuz, through which a fifth of the world’s oil and gas supplies are normally carried.
He said the shipping route could be fully opened as early as Friday, when the deal is signed in Switzerland.
Prime Minister Sir Keir Starmer has said the UK will join other European nations in helping get shipping moving again through the strait.
Mounting hopes that the deal will be forthcoming have also boosted stocks, with London’s FTSE 100 Index up 0.8% at 10518.57 in afternoon trading on Wednesday.
On Wall Street, the Dow Jones Industrial Average jumped 0.7% in early trading.
Kathleen Brooks, research director at XTB, said: “Although the deal has not been formally signed, there already appears to be a peace dividend for markets.”
But she said concerns remain in the oil sector over the Strait of Hormuz.
Ms Brooks added: “Bosses of the world’s biggest shipping companies want to see more than just an agreement in place, mines need to be swept, and all hostilities must end, before tankers with hundreds of millions of dollars’ worth of cargo will be able to traverse the strait without fear of a flare-up in tensions that could close the strait mid-voyage.
“Thus, even if a deal is signed to end the US-Iran war, the situation is not without its challenges.”
The sharp declines in the cost of crude come just before the Bank of England’s latest interest rate announcement on Thursday and the US Federal Reserve’s meeting on Wednesday, and are seen as helping ease concerns over inflation.
Chris Beauchamp, chief market analyst at investing and trading platform IG, said: “Falling oil prices have arrived at a convenient moment, giving both the Fed and the Bank of England something to work with ahead of their meetings this week.
“Cheaper energy takes pressure off inflation, and that should allow both central banks to strike a more measured tone than some of the more excitable commentary and market pricing seen since the US and Iran went to war.”
The Bank is widely expected to hold rates at 3.75% on Thursday, with lower crude prices helping strengthen the case for a no-change decision.
Mr Beauchamp said: “A sustained fall in energy prices does much of the work for central bankers, softening inflation expectations without requiring any action on their part.”
