Oil prices have eased back sharply on hopes of progress in US-Iran peace talks and after President Donald Trump signalled he could push for a more diplomatic solution to the conflict.
The cost of benchmark Brent crude dropped 7% on Monday to under 106 US dollars a barrel – its lowest level since mid-October – with both sides appearing more willing to avoid escalating the war.
It marks a welcome retreat for oil, which had surged close to 118 dollars a barrel last week and within touching distance of the peaks seen in the initial aftermath of the start of the Iran war.
Gilt Yields Fall
Long-term UK government borrowing costs also benefited, with the yields on 10-year gilts falling back to their lowest level for six weeks, at 5.19% at one stage, as lower oil costs calmed building inflation fears.
The Bank of England is widely expected to hike interest rates on Thursday to 4% from 3.75% given rising UK inflation, but lower oil prices could see policymakers rein in their signals for future rises.
Elections and Oil Prices
Kathleen Brooks, research director at XTB, said the US midterm elections on Tuesday will be key to the Iran conflict and oil prices.
She said: “The US president had hinted that there could be a restart of the war with Iran once the elections are out of the way.
“However, he has recently expressed interest in a diplomatic solution to the conflict.
“If the Democrats win Congress tomorrow, this could hasten a resolution to the conflict which may push the price of oil below 100 dollars per barrel, and could boost investor sentiment on a broad basis.”
