Oil Prices Plunge as Middle East Tensions Ease

A sudden lull in fighting in the Middle East led to a sharp drop in oil prices on Monday, easing inflation risks and boosting bonds ahead of central bank meetings.

Brent crude slid 5.2% to $91.73 a barrel, while U.S. crude dropped 5.4% to $84.45, as Iran halted its own attacks and the U.S. military reportedly expressed concern about dwindling supplies of ammunition.

Sally Auld, group chief economist at NAB, said that the developments in the Middle East had moved in a positive direction over the weekend, adding credibility to the notion that oil above $100 a barrel induces de-escalatory behavior from both sides.

The drop in oil provided some relief from inflation fears and led markets to slightly pare the probability of rate hikes from the Federal Reserve, with investors seeing the outcome of the July meeting as unusually uncertain.