Oil Prices Hit Lowest Since August as Trump Says Iran War Is 'Effectively Over', Markets Rally

Brent crude fell to its lowest level since August on Tuesday, dropping nearly 3% to $89.66 (£67.36) a barrel, after Donald Trump said Iran 'militarily is effectively over'. European and UK shares rose as investors bet that tensions in the Middle East could ease.

The fall extended a decline of almost 6% on Monday, as traders judged that the conflict might be nearing an end. Shares moved higher: the pan-European Stoxx 600 rose 0.9%, while the FTSE 100 gained 0.4%.

Mr Trump's remark concerned Iran's military capability, not a formal declaration that the war had ended. He said the US would maintain the status quo and remain ready to act if necessary. The drop in oil prices therefore reflects changing market expectations, rather than confirmation that hostilities have stopped.

The movements in oil and shares show how investors are responding to the possibility of easing tensions. However, the remarks did not establish that a settlement had been reached or that the conflict was over.

Trump Says US Forces Remain Ready To Act

Speaking at a White House press conference, Mr Trump said Israel and US allies in the Gulf were well protected against Iran. He suggested further escalation was unnecessary for now, though this was his assessment and has not been independently verified.

He said military action 'doesn't seem to be a very necessary thing' at this point, but added that US forces were 'locked and loaded, ready to go for any reason'.

Investors responded to the remarks, alongside wider hopes of easing tensions, by selling oil and buying shares. The move came after Brent had fallen sharply on Monday, extending the pressure on crude prices into a second trading session.

The prospect of lower energy costs also drew attention from investors weighing the possible effect on inflation. However, cheaper oil alone would not establish whether inflation pressures across the wider economy were easing.

Shares Rise As Energy Stocks Fall

The Stoxx 600 closed at 662.54, within 1% of the record high it set in early August. In London, the FTSE 100 rose 45 points to 10,828.

BP and Shell fell 1.7% and 1.5% respectively, making them two of the FTSE 100's weakest performers as crude retreated. Their falls contrasted with the wider rise in the index.

Daniela Hathorn, senior market analyst at Capital.com, said global markets were extending their recovery after a broad-based rally on Wall Street, helped by lower oil prices and renewed buying of technology stocks.

She said cheaper energy could ease inflation expectations, but the Federal Reserve would need evidence of broader disinflation before drawing comfort.

Attention then turned to US inflation data for October, due at 1.30pm GMT on Tuesday. The figures are expected to help shape interest-rate expectations and may test whether market optimism about falling energy costs is supported by wider price trends.

UK Petrol Prices Edge Lower

The AA said average UK petrol prices had fallen 5p a litre since early October to 169.7p, down from a peak of 174.7p on 5 October.

The motoring organisation said falling wholesale costs indicated a further 10p-a-litre reduction could be on the way. This is an indication, not a guarantee, of what motorists will eventually pay at the pump, as retail prices tend to follow wholesale movements with a delay.

No settlement has been announced. Oil prices and market sentiment remain exposed to developments in the conflict, while the effect of lower crude costs on petrol prices may take time to emerge.