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.

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.

“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.