Oil Nears $100 as US-Iran Peace Hopes Waver After Fresh Strikes

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Oil Edges Back Towards $100

Global investors are clinging to hopes that a US-Iran peace deal could be close, but optimism is waning after fresh US strikes in the Middle East. Brent crude oil is creeping back towards the $100 a barrel mark, up 2.5% today at $98.57 a barrel, having dropped below that $100 mark yesterday for the first time in a fortnight.

US and Iranian negotiators are in Doha to discuss a potential end to the three-month war, after Donald Trump declared last weekend that a peace deal with Iran “has been largely negotiated”. However, yesterday US forces attacked missile sites in southern Iran and boats trying to lay mines, which has created some doubts that a deal is genuinely close.

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Market Reactions

Jim Reid of Deutsche Bank suggests the US attacks were “a warning shot that the ceasefire is fragile”, explaining: “These actions were described as ‘defensive’ and not an end to the ceasefire with Iran. Net net, optimism is still elevated that an agreement can be made to end the war. We have been here before, of course, but it has felt for some time that the move towards peace has been three steps forward and one or two back.”

There are encouraging moves in the government bond market too. The yields (or interest rates) on US debt have dropped today as prices rally, lifted by hopes that a peace deal will reopen the Strait of Hormuz and ease the inflationary pressures hitting the world economy. Wall Street, which was closed yesterday, is on track to open higher.

Markets have become more “risk-sensitive,” reports Daniela Hathorn, senior market analyst at Capital.com, who cautions: “Markets are still leaning optimistic, but the tolerance for negative headlines is shrinking. If negotiations stall further or the Strait disruption worsens, the reaction across oil, yields and equities could become much sharper than it has been over the past few weeks.”