Oil Price Falls By 6% As US-Iran Tensions Ease

 

Key Takeaways

• Brent crude fell six per cent to about $86 per barrel and US West Texas Intermediate dropped 6.8 per cent to $83.22 per barrel on Monday.
• The drop followed a pause in attacks between the United States and Iran, after earlier Strait of Hormuz ship attacks pushed Brent above $100 last week.
• European and Asian stocks gained, but Wall Street’s early rise faded as Nvidia fell over five per cent, while investors watched Fed and Bank of England rate decisions.

Oil prices fell sharply on Monday as the United States and Iran paused their exchange of attacks, easing concerns over possible disruptions to oil supplies and shipping in the Middle East.

International benchmark Brent crude fell by six per cent to about $86 per barrel, while US West Texas Intermediate crude dropped 6.8 per cent to $83.22 per barrel.

The decline came after the United States and Iran temporarily halted hostilities, giving Gulf shipping and the global oil industry some relief.

The development also helped most stock markets gain at the beginning of a week filled with major corporate earnings reports and key decisions by central banks on interest rates.

The latest pause followed renewed hostilities between Washington and Tehran earlier this month, which broke a fragile truce.

Naija News reports that the situation worsened after Iran attacked ships passing through Omani waters in the Strait of Hormuz, leading to a fresh cycle of escalation and raising fears about the security of one of the world’s most important oil shipping routes.

Oil prices rose sharply during the escalation, with Brent crude climbing above $100 per barrel last week for the first time since May.

However, the latest easing of tensions pushed prices lower as investors hoped that the pause could lead to renewed diplomatic efforts.

Donald Trump was “giving talks some space,” according to the US president’s UN envoy.

“Although the situation in the Middle East has calmed, it has not been resolved, and it could make a decline below $85 per barrel tricky at this stage,” said Kathleen Brooks, research director at XTB Trading Group.

David Morrison of Trade Nation said investors were hopeful that the latest pause could lead to a return to negotiations.

“Investors are hoping that this could be a precursor to a resumption in peace talks,” he said.

The calmer situation also reduced fears that a prolonged rise in oil prices could worsen inflation and force central banks to raise interest rates again.

The development initially boosted global equity markets, with major European and Asian markets recording gains.

In Europe, Frankfurt’s DAX rose one per cent, while London’s FTSE 100 and Paris’ CAC 40 also closed higher.

In Asia, Tokyo, Seoul, Hong Kong and Shanghai all recorded gains.

However, early gains on Wall Street weakened later in the trading session. By late morning, only the Dow Jones Industrial Average remained in positive territory, while technology stocks continued to weigh on the Nasdaq Composite.

“When a calming of Middle Eastern hostilities fails to provoke a major up day in stocks, you know there is more trouble ahead,” said Chris Beauchamp, Chief Market Analyst at online trading and investing platform IG.

“Earlier optimism around a pause in fighting did not last once the US session began, and investors took the earlier gains as a chance to cut back exposure yet further in battered tech stocks,” he added.

Shares of artificial intelligence chip giant Nvidia fell by more than five per cent, contributing to the weakness in technology stocks.

Investors are also looking ahead to major central bank decisions this week.

The US Federal Reserve is widely expected to leave interest rates unchanged on Wednesday, while the Bank of England is expected to follow the same path on Thursday.

However, policymakers face a difficult situation as they weigh slowing inflation against the possibility that higher oil prices could trigger fresh inflationary pressure.

“Policymakers face a difficult trade-off between evidence that inflation had been moderating and growing signs that higher oil prices could create a more persistent inflation shock,” said Jim Reid, managing director at Deutsche Bank.

Apart from central bank decisions, investors are also watching corporate earnings from major technology companies.

South Korea’s SK hynix and Samsung, as well as Japan’s Kioxia, are expected to release their earnings this week.

In the United States, technology giants including Microsoft, Meta, Apple and Amazon are also due to report their results.

Investors are expected to pay close attention not only to the companies’ earnings but also to their outlook and spending plans, particularly on artificial intelligence and other emerging technologies.

Meanwhile, shares of China’s leading memory chipmaker, CXMT, surged more than 500 per cent on its debut on the Shanghai stock exchange.

The company briefly became the most valuable firm on mainland China’s stock market before reducing some of its gains to close 465 per cent higher.

The sharp rise came after the Anhui-based company raised $9.8bn in a major initial public offering, reportedly making it China’s biggest mainland technology share sale.

Market Figures

Naija News understands that as of about 1530 GMT, Brent North Sea crude was down 6.0 per cent at $86.22 per barrel, while West Texas Intermediate fell 6.8 per cent to $83.22 per barrel.

On Wall Street, the Dow Jones Industrial Average rose 0.4 per cent to 52,151.86 points, while the S&P 500 fell 0.1 per cent to 7,404.63 points. The Nasdaq Composite declined 0.3 per cent to 24,898.16 points.

In Europe, London’s FTSE 100 gained 0.4 per cent to close at 10,781.75 points. Paris’ CAC 40 rose 0.4 per cent to 8,406.06 points, while Frankfurt’s DAX advanced one per cent to 25,361.03 points.

In Asia, Tokyo’s Nikkei 225 rose 0.5 per cent to 64,931.19 points. Hong Kong’s Hang Seng Index gained one per cent to 25,207.18 points, while Shanghai’s Composite Index climbed 1.2 per cent to 3,858.24 points.

In the foreign exchange market, the euro rose slightly against the dollar to $1.1376 from $1.1373 on Friday, while the pound fell to $1.3305 from $1.3323.

The euro rose to 85.50 pence against the pound, compared with 85.34 pence previously, while the dollar weakened slightly against the yen to 163.67 yen from 163.84.