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HOUSTON — Oil prices retreated Thursday as a ceasefire agreement between Israel and Lebanon and renewed signs of U.S.-Iran diplomacy raised hopes the months-long energy crisis could begin to stabilize, though crude remains elevated and economists caution the outlook remains uncertain.
Brent crude, the international benchmark, fell nearly three per cent to just under US$95 per barrel, while U.S. West Texas Intermediate dropped more than three per cent to about US$93.
The decline followed a ceasefire agreement between Israel and Lebanon, a development traders viewed as a potential step toward broader diplomatic progress involving Iran and the United States.
U.S. President Donald Trump also signalled there could be movement in negotiations with Tehran as early as this weekend, while Iranian officials indicated contacts between the two countries remain ongoing despite limited progress.
The lower oil prices reflect growing optimism among investors that a diplomatic solution could eventually lead to the reopening of the Strait of Hormuz, a critical shipping route that normally handles roughly one-fifth of the world’s oil supply.
Even with Thursday’s pullback, however, oil remains dramatically higher than before the conflict escalated in late February.
Both Brent and WTI crude have gained more than 45 per cent since the beginning of the war, and many oil economists continue to expect prices to remain in a range between US$90 and US$100 per barrel through the remainder of 2026 and into 2027.
Economists say energy markets remain caught between optimism surrounding diplomatic progress and concerns any setback could quickly tighten global supplies once again. While strategic petroleum reserves and existing inventories have helped soften the impact of supply disruptions, shipping through the Strait of Hormuz remains significantly restricted.
Many market observers believe current oil prices still contain a substantial geopolitical risk premium, reflecting concerns about future supply interruptions rather than an immediate global shortage of crude.
The more optimistic tone also spilled into equity markets.
On Wall Street, the Dow Jones Industrial Average climbed more than 800 points as lower oil prices reduced concerns about inflation and economic growth. Investors appeared encouraged by the possibility of improving energy supplies and a reduction in geopolitical risks.
The broader market reaction was more restrained. While most stocks advanced, technology shares tied to the artificial intelligence sector declined, limiting gains in the S&P 500 and pushing the Nasdaq slightly lower.
Economists caution that market sentiment remains highly dependent on developments in the Middle East. A reopening of the Strait of Hormuz could place additional downward pressure on oil prices, while renewed military action or a breakdown in negotiations could quickly reverse recent declines.
For now, traders appear to be betting on diplomacy, but with Brent crude still near US$95 per barrel and WTI holding above US$90, energy markets continue to reflect an unusually elevated level of geopolitical risk.
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