Oil prices: US-Iran war gains wiped out as ceasefire hammers ASX energy stocks including Woodside and Santos

While the rest of the Australian share market is riding a wave of euphoria as a two-week ceasefire eases tensions in the Middle East, a subsequent fall in oil prices is now smashing energy stocks.

The S&P-ASX200 shot up 2.8 per cent at the open as Donald Trump announced a fortnight’s reprieve and the Iranian government agreed to reopen the Strait of Hormuz, which supports 20 per cent of the world’s seaborne oil trade.

The index slipped back later in the session but was still up 2.5 per cent to a four-week high of 8950.20 points at 10.30am.

Most sectors were in the green, but energy stocks held back the rally, diving 8 per cent.

Woodside Energy — Australia’s biggest producer, and North West Shelf operator — plunged 11.4 per cent while Santos shed 5 per cent.

Falling oil prices after the ceasefire was announced mean both have now giving up all their gains from six weeks of volatile trading since the conflict began on February 28.

Joining them in the sell-off were Karoon Energy (down 11.7 per cent), Beach Energy (down 6.7 per cent) and fuel retailers Viva Energy (down 9.3 per cent) and Ampol (down 4 per cent).

Coal miners New Hope (down 9.5 per cent) and Yancoal (down 8.4 per cent) were also among the worst of the market’s laggards.

But the prospect of cheaper fuel helped lift the fortunes of airlines Qantas (up 9 per cent) and Virgin (up 13 per cent).

West Texas Intermediate tumbled as much as 17 per cent to under $US100 a barrel in early trade. Brent crude oil futures tumbled 6 per cent to $US102.61.

Soaring prices have left countries, including Australia, scrambling to secure more supplies as petrol and diesel prices skyrocketed at the bowser and fuelled fears about higher inflation and interest rates.

Australia is highly dependent on Singapore, Malaysian and Korean oil refineries for fuel, and many Asian nations purchase large amounts of Australian natural gas.

Financial markets hanging on Donald Trump’s threatening deadline for Iran found sweet relief in news of the US suspending attacks on Iran, analyst Stephen Innes said.

“Once the White House stepped back from the brink and replaced imminent escalation with a conditional two-week ceasefire, oil stopped acting as a lever of global fear and began to revert to something closer to flow and balance,” Mr Innes said in a note.

“That matters enormously for Asia. Lower oil prices remove the chokehold that has weighed on regional risk sentiment, especially in markets that feel imported energy shocks first and hardest.”

Brief window of opportunity

Shipowners are scrambling to understand the fine print in the ceasefire that could temporarily open up the Strait of Hormuz, hoping to take advantage of a potential window to extract more than 800 vessels trapped in the Persian Gulf.

The near-closure of the vital waterway for weeks has created an unprecedented global energy supply crunch, as Iran tightened its control in the aftermath of US and Israeli strikes. Unable to guarantee the safety of thousands of seafarers and their cargoes after multiple attacks, vessels have instead been loitering on either side and traffic has slowed to a trickle.

For shipowners, however, the news has been enough to prompt cautious optimism. The Japanese Shipowners’ Association, a major industry group, was among those which said it would check the details of the US-Iran agreement, and then relay information.

Most, however, warned that more clarity would be required for ships to move, and even in the best case flows would take time to resume in earnest. In peacetime, some 135 ships transit daily, a figure that has shrunk dramatically.