Global oil prices tumbled on Monday after Donald Trump announced a US-Iran peace agreement, fuelling expectations that the crucial Strait of Hormuz could soon reopen to commercial shipping.
Brent crude fell 4.7 per cent to $83.24 a barrel, extending losses recorded on Friday and marking a sharp retreat from its May peak of $126.41.
Despite the decline, the benchmark international oil price remains above the $70 level seen before hostilities began in late February.
The latest fall left Brent at its lowest level since the early stages of the conflict on March 10.
President Trump declared on Sunday that the agreement was "now complete" and urged shipping traffic to resume operations through the region.
Posting on social media, he said: "Ships of the World, start your engines. Let the oil flow!"
The Strait of Hormuz carries around one-fifth of global oil and gas supplies, making it one of the world's most strategically important shipping routes.
Financial markets responded positively to the prospect of lower energy costs and easing inflationary pressures.
Japan's Nikkei index surged five per cent, while South Korea's Kospi climbed 5.6 per cent.
China's SSE Composite also moved higher, rising 0.88 per cent.
The Ftse 100 is expected to open 0.8 per cent higher when trading begins in London.
Currency markets reflected the improved investor sentiment, with the US dollar weakening overnight and sterling gaining 0.4 per cent to $1.346.
Gold prices rose 2.7 per cent to $4,330.31 an ounce.
The precious metal remains well below the record levels above $5,400 an ounce reached in January during the height of the crisis.
The agreement comes at a significant moment for global central banks, with policymakers across several major economies due to announce interest rate decisions this week.
The Bank of England is widely expected to leave interest rates unchanged at 3.75 per cent when policymakers meet on Thursday.
Lower energy prices are expected to ease inflation concerns and reduce pressure for further monetary tightening.
The US Federal Reserve is also expected to keep rates on hold at its first policy meeting under new chairman Kevin Warsh.
Japan is viewed as the only major economy where policymakers are currently expected to raise borrowing costs.
Sean Callow, an analyst at ITC Markets, said: "The prospect of a sustained fall in energy prices changes the conversation for central banks just ahead of a flurry of policy decisions."
Central banks in Australia, Switzerland, Sweden, Norway and Russia are also scheduled to meet this week.
Despite the positive market reaction, analysts warned that important questions remain about how shipping through the Strait of Hormuz will operate under any final agreement.
Mr Callow said: "The lack of details, especially on freedom of shipping, is a concern but not one that should constrain markets today as the surge in risk appetite plays out."
Iran has indicated that passage through the strait would be regulated jointly with Oman, raising the possibility that vessels could face a toll to use the route.
The Japanese Shipowners' Association said 38 Japanese-linked vessels remain stranded in the channel.
A spokesman for the organisation said it would wait for further details before commenting on the agreement, which is due to be signed in Switzerland on June 19.
Iranian officials have also outlined a 60-day negotiating period aimed at reaching a broader settlement covering issues including Tehran's nuclear programme and sanctions relief.
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