Two weeks of ceasefire trigger a major rebound in global markets; energy pain will continue.

Ask AI · How will Trump’s ceasefire decision affect U.S.-Iran diplomatic dynamics?

Southern Finance, 21st Century Economic Herald reporter Wu Bin reports

According to Xinhua News Agency, on the evening of April 7, U.S. President Trump posted on social media that: “I agree to pause bombing and attack actions against Iran for two weeks.” At this time, less than an hour and a half had passed since Trump’s so-called “final deadline” for Iran.

On the other hand, in the early hours of April 8, Iranian Foreign Minister Aragchi announced on behalf of Iran’s Supreme National Security Council that the Strait of Hormuz will achieve secure passage within two weeks.

On April 7, as trading on the turbulent Wall Street was nearing the end of the day, the ceasefire news wiped out a 1.2% drop in the S&P 500, closing up 0.08%. The Nasdaq Composite rose 0.1%, while the Dow Jones fell 0.18%.

Supported by the two-week ceasefire news, Brent crude oil futures and WTI crude oil futures plunged by more than 10%, gold and silver rebounded, and stock markets across the Asia-Pacific region generally surged.

The most severe energy supply disruption is temporarily eased

Affected by the Middle East conflict, exports from OPEC’s major member countries were clearly hindered. In March, crude oil production recorded the largest quarter-over-quarter decline in at least forty years. OPEC’s crude oil output dropped sharply by 7.56 million barrels per day to 22 million barrels per day, a decline of about 25%. With the closure of the Strait of Hormuz, Saudi Arabia, the UAE, and Iraq were forced to cut production significantly.

From the perspective of the single-month decline, this even exceeded the period of the 1973 Arab oil embargo. During October to December of that year, the market reduced total supply by about 5 million barrels per day, when the global oil market was far smaller than it is today.

On April 7, Fatih Birol, Executive Director of the International Energy Agency (IEA), said that the level of global energy supply disruption caused by the blockade of the Strait of Hormuz has already surpassed every energy crisis in history, more severe than the crises in 1973, 1979, and 2022 combined.

According to data from Platts, a unit of S&P Global Energy, on April 7, spot Brent crude oil prices briefly rose to $144.42 per barrel, breaking the all-time high of $144.22 per barrel set in 2008.

After the two-week ceasefire news was released, market worries about the Middle East military conflict were significantly eased. Light crude oil futures for May delivery on the New York Mercantile Exchange fell by more than 15% accordingly, but it should be noted that the crisis has not ended completely.

Energy pain will continue

On April 7, the U.S. Energy Information Administration (EIA) said that even if the Strait of Hormuz reopens, fuel prices may continue rising over the coming months. The EIA expects that U.S. retail gasoline prices could reach an average peak of $4.30 per gallon in April, and that the full-year average will exceed $3.70 per gallon.

Based on data from the American Automobile Association (AAA), on April 7, the U.S. national average gasoline price was $4.14 per gallon, the highest level since August 2022.

Even if the conflict ends, it will still take several months for oil transport through the Strait of Hormuz to fully resume. Until comprehensive restoration of oil transport and a return to normal production levels in Middle East oil-producing countries, oil prices will remain elevated. The EIA expects the average Brent crude spot price this year to be $96 per barrel, higher than the previous forecast of $78.84.

On the demand side, the EIA lowered its forecast for global oil demand growth to half of the previously estimated figure. Fuel shortages appeared in parts of the world, and many governments introduced measures aimed at limiting fuel use and exports. The EIA expects global oil demand this year to increase by about 0.6 million barrels per day to 104.6 million barrels per day, which is lower than the previously forecast growth of 1.2 million barrels per day. Later this year, after supply returns to normal, global oil demand in 2027 is expected to rebound, with the average daily increase potentially reaching 1.6 million barrels.