Oil Prices Fall Below $100 a Barrel on Hopes of Iran Peace Deal
On Monday, oil prices declined below $100 a barrel while stock markets experienced gains, driven by optimism surrounding potential peace negotiations between the US and Iran.
Brent crude futures, the global benchmark for oil, decreased by 6% to $97.28 a barrel, marking the lowest price point in two weeks. This drop reflects hopes that an agreement to end the nearly three-month conflict involving the US, Israel, and Iran may be reached.
Despite progress in negotiating a framework, the US and Iran have yet to resolve key issues, including Iran’s blockade of the Strait of Hormuz. An Iranian government spokesperson warned that an agreement remains "not imminent." The effective closure of the strait caused energy prices to surge after the US and Israel initiated missile strikes on Tehran on 28 February.
Warren Patterson, the head of commodities strategy at ING, told : "We’ve been at this stage before, only for talks to break down. Therefore, the market will likely be more cautious about overreacting."
Analysts note that even if the Strait of Hormuz reopens, a return to normal oil flow will require several months while infrastructure damaged by the conflict, including pipelines and terminals, is repaired. Last week, Barclays maintained its forecast for an average Brent crude oil price of $100 this year but acknowledged risks of higher prices.
According to , citing shipping data, two tankers carrying liquefied natural gas departed the strait on Monday, bound for Pakistan and China. Additionally, a supertanker carrying Iraqi crude oil left the Gulf on Saturday for China after being stranded for nearly three months.
The UBS analyst Giovanni Staunovo said: "We continue to believe that the key factors for the oil market to watch should be the physical oil flows and so far, flows through the strait remain restricted."
Stock Market and Currency Movements
Japan’s Nikkei index rose nearly 3%, while the pan-European Stoxx 600 index increased by 0.9%. Several markets, including those in the US and the UK, were closed on Monday due to public holidays. Despite concerns over the war’s impact on the global economy, stock markets have largely focused on the growth of artificial intelligence and robust corporate earnings.
The US dollar declined by 0.3% against a basket of major currencies. The British pound gained nearly 0.6%, reaching $1.3506, its highest level since mid-May.
Gold prices rose by 1.46%, reaching $4,574 an ounce.
Stephen Innes, an independent analyst, said: "Treasury [bond] futures rallied, gold climbed and equity futures pushed higher as investors started pricing the possibility that the world’s most dangerous energy choke point may soon reopen to something resembling normal flow.
"The market response made perfect sense given how much inflation fear and hawkish rate pricing had been embedded into the curve during the recent energy shock."
Inflation and Interest Rate Expectations
Inflation concerns have increased globally due to rising costs of oil, gas, and other materials such as fertilizer, which is expected to significantly drive up food prices in the coming months.
Consequently, market expectations shifted from anticipating interest rate cuts before the Iran conflict to predicting rate hikes. The Bank of England is expected to raise rates twice this year.
