Oil prices drop below 100 dollars a barrel on renewed hopes over peace deal

Oil prices have fallen sharply to below 100 US dollars a barrel on fresh hopes of an end to the Iran war and unblocking of the crucial Strait of Hormuz.

The cost of benchmark Brent crude dropped 11% to under 98 dollars a barrel in afternoon trading on Wednesday as US President Donald Trump said he was pausing efforts to guide stranded ships out of the strait to finalise a deal with Iran on ending the conflict.

But he confirmed a US blockade of Iranian ports would remain in place while talks were held to end the war.

Stock markets across the UK and Europe surged in response, with London’s FTSE 100 Index soaring 2.6% to 10485.9.

In France, the Cac 40 was 3.3% higher and Germany’s Dax was 2.8% higher.

Investor sentiment was boosted on reports that Iranian officials were travelling to China ahead of a summit between Mr Trump and Chinese leader Xi Jinping.

A ceasefire with Iran is already in place, but it has been increasingly fragile.

The US military is trying to reopen a path in the Strait of Hormuz, which would allow oil tankers to resume shipments from the Persian Gulf.

The blockage of the strait, through which a fifth of the world’s oil is carried, has sent oil and energy prices soaring worldwide.

Chris Beauchamp, chief market analyst at investing and trading platform IG, said: “There does seem to have been some real progress on key issues, and perhaps a pathway has been found that strikes a deal amenable to both sides.

“Such a result would allow markets to go back to focusing on earnings growth and a recovery in economic momentum, putting the worries of the last two months behind them.”

Long-term UK government borrowing costs also eased back, as gilts recovered from Tuesday’s sell-off thanks to optimism over inflation concerns should the Iran war come to an end.

The yield on 30-year UK government bonds, also known as gilts, fell back to 5.63%, having reached their highest level since 1998 on Tuesday, at 5.798%.

Ten-year gilt yields fell to 4.94%, having hit a six-week high of 5.102% on Tuesday.

Gilt yields move counter to the value of the bonds, meaning their prices fall when yields rise.