Oil prices surged toward $100 per barrel on Thursday as doubts emerged over a fragile Middle East ceasefire, reversing a brief relief rally and sending global stock markets lower.
Investors reacted to renewed tensions after a two-week halt in the war against Iran was announced by US President Donald Trump on Wednesday, which had initially sparked a market rally and sent crude prices plunging. Tehran had agreed to reopen the Strait of Hormuz, a critical waterway for one-fifth of the world's oil and gas shipments.
However, the ceasefire now appears precarious. Israel's continued attacks against Iran-backed Hezbollah in Lebanon—resulting in over 200 casualties—and Iran's announcement that it will impose tolls on ships transiting the strait have cast doubt on the truce's sustainability.
"Oil prices will likely remain elevated and choppy until a more permanent agreement is struck between all parties," said Aarin Chiekrie, equity analyst at Hargreaves Lansdown.
The main US oil contract, West Texas Intermediate, rebounded over 5 percent to approach $100 a barrel. International calls for extending the ceasefire have intensified amid the escalating violence.
Anthony Kettle at RBC BlueBay Asset Management noted, "Even if the ceasefire holds it will take time for energy exports from the region to return to more normalized levels, so there will be an impact on growth and inflation that is still difficult to ascertain." He added that significant infrastructure damage in major energy-exporting countries would further complicate recovery.
Global equity markets declined as traders locked in profits from Wednesday's rally and turned their attention to the upcoming first-quarter earnings season, which is expected to reveal the war's impact on corporate results worldwide.
"While progress towards a more permanent resolution in the Middle East will dominate short-term market moves, it's earning power that drives stock prices in the long term," Chiekrie remarked.
Wall Street opened with losses, following declines in European and Asian markets. Some companies have already begun warning investors about the conflict's effect on their January-March earnings, underscoring the broader economic ramifications of the ongoing instability.