Oil prices fell by over 5 per cent to a two-week low in the international market on Tuesday after Israel announced that it has agreed to US President Donald Trump’s proposal for a ceasefire with Iran.

Price of the benchmark Brent crude declined by nearly $4 to $67.7 a barrel while U.S. West Texas Intermediate crude turned cheaper by $3.75 at $64.76 per barrel as concerns abated over disruption in oil supplies due to the tensions in the Middle East.

Israel has agreed to President Trump's proposal for a ceasefire with Iran after it achieved its goal of “eliminating” Tehran's nuclear and ballistic missile threat, Prime Minister Benjamin Netanyahu said in a statement on Tuesday.

President Donald Trump announced that a ceasefire between Israel and Iran is now in effect, after 12 days of deadly air attacks that triggered fears of a wider conflict engulfing the Middle East region which is a major oil exporter

Iran produces around 3.3 million barrels per day of crude oil which is 3 per cent of global supplies and exports around 1.5 mbpd with China being the main importer (80 per cent), followed by Turkey.

Iran had also warned of blocking the Strait of Hormuz through which 20 per cent of the world’s oil is shipped out from countries such as Saudi Arabia and UAE. With the ceasefire coming into effect fears over this disruption have subsided.

India imports around 85 per cent of its crude oil requirement and a surge in oil prices leads to an increase in its oil import bill and pushes up the rate of inflation which hurts economic growth. The larger outgo of foreign exchange also leads to a weakening of the rupee vis-a-vis the US dollar.

Minister of Petroleum and Natural Gas Hardeep Singh Puri on Sunday had said that the government was closely monitoring the evolving geopolitical situation in the Middle East as he allayed fears over the supply of petroleum products getting hit due to the Israel-Iran conflict.

He pointed out that India’s oil marketing companies (Indian Oil, Bharat Petroleum and Hindustan Petroleum) have supplies for several weeks and continue to receive energy supplies from several routes.

“We will take all necessary steps to ensure stability of supplies of fuel to our citizens,” the minister had assured.

India has diversified its oil sources by increasing imports from Russia as well as the US and building resilience through strategic reserves.

The minister highlighted the government’s initiative in setting up storage facilities for strategic petroleum reserves, on which the country can fall back in times of emergency and which assume importance during times of geopolitical uncertainty. These reserves can also be dipped into at times when global prices skyrocket to provide a cushion to the national oil companies.

The minister mentioned that the storage capacity at Pudur is 2.25 million metric tonnes (MMT), the Visakhapatnam facility has the capacity to store 1.33 MMT of crude oil while Mangalore has a storage capacity of 1.5 MMT.