U.S. crude oil posts biggest one-day drop since 2020 on U.S.-Iran ceasefire agreement

Oil prices plunged Wednesday after the U.S. and Iran agreed to a two-week ceasefire that allows safe passage through the Strait of Hormuz, but the fragile agreement has not led to a breakthrough in tanker traffic so far.

U.S. West Texas Intermediate futures for May delivery fell more than 16% to close at $94.41 per barrel, their biggest one-day decline since April 2020 in the midst of the pandemic. International benchmark Brent crude futures for June delivery lost about 13% to settle at $94.75 a barrel.

President Donald Trump said the two-week ceasefire was subject to Iran agreeing to a complete, immediate and safe opening of the Strait of Hormuz. The U.S. received a 10-point proposal from Iran that is a workable basis for negotiations, he said.

"Almost all of the various points of past contention have been agreed to between the United States and Iran, but a two week period will allow the Agreement to be finalized and consummated," Trump said in a social media post.

Iranian Foreign Minister Seyed Abbas Araghchi said Tehran will allow safe passage through the strait during the ceasefire via "coordination with Iran's Armed Forces and with due consideration to technical limitations."

"If attacks against Iran are halted, our Powerful Armed Forces will cease their defensive operations," Araghchi said in a social media post.

Fragile Hormuz agreement

The apparent ceasefire came less than two hours before Trump's 8 p.m. ET Tuesday deadline for Iran to reopen the strait. The president had threatened to bomb every bridge and power plant in Iran if its leaders didn't meet the U.S. deadline.

Trump said early Wednesday in a social media post that the U.S. would help "with the traffic buildup in the Strait of Hormuz" during the ceasefire.

But the agreement on safe passage appeared to be breaking down just hours after the ceasefire announcement. Oil tanker traffic through the Strait has been halted as Israel continues to attack Lebanon, according to the Iranian state news agency Fars.

Ship traffic has not picked up above the handful of daily vessels that have made the trip throughout the war, according to data from Kpler.

"We may just see 10-15 [vessels] given that Iran is still vetting who goes through: that would be a similar pace to that seen in recent days," said Matt Smith, an oil analyst at Kpler.

Tehran, meanwhile, plans to demand that ship owners pay tolls in cryptocurrency to pass through the Strait, according to a report in the Financial Times.

"I don't think we're going to see a normalization within these two weeks," said Tomer Raanan, a maritime risk analyst at Lloyd's List. Ship owners with vessels stuck in the Persian Gulf will try to get out if they can, but will likely be reluctant to send ships back in, he said.

"We also have to remember, even if ships want to go back to transiting normally back and forth, there have been attacks on oil infrastructure and production cuts," Raanan said. "The whole system is in flux."

Oil exports through the strait plunged during the war due to Iranian attacks on commercial shipping, triggering the largest disruption of crude supplies in history.

About 20% of global oil supplies passed through the strait before the U.S. and Israel attacked Iran on Feb. 28. The narrow sea route connects producers in the Persian Gulf to global markets.

Prices of crude oil, jet fuel, diesel and gasoline have surged during the war. Analysts and oil company executives have all warned that fuel shortages will ripple around the world if the strait doesn't fully reopen.