Oil prices extended their recent gains on Tuesday as optimism over a possible agreement between the United States and Iran to reopen the Strait of Hormuz weakened, raising fresh concerns about inflation and the possibility of further interest rate increases in the US.
Crude prices have climbed by about 10 per cent over the past week, with Washington and Tehran showing little sign of reaching an agreement over the strategic waterway despite earlier positive comments from the White House.
Brent crude futures fell 10 cents, or 0.11 per cent, to $87.62 a barrel by 0405 GMT, while US West Texas Intermediate crude futures slipped 5 cents, or 0.06 per cent, to $82.08 a barrel.
The latest development came after US President Donald Trump said on Monday that he would seek conflict compensation from Iran as part of any peace negotiations. He cited attacks and killings over several decades that he said were allegedly backed or carried out by Tehran.
Trump’s position came in response to Iran’s demand for US war reparations as a condition for resolving the crisis.
The US president had a day earlier said he was “low-keying” his approach to the conflict, suggesting that he could rely more on economic pressure rather than launching additional military strikes.
However, the latest exchange between the two countries appears to have made a quick agreement less likely. Both major crude benchmarks rose by about five per cent on Monday before extending their gains into Tuesday.
“In the absence of any positive headlines on negotiations to reopen the strait, pressure on oil prices has been upward,” wrote Jason Wong at BNZ.
Stephen Innes, global strategist at Quintex Intel, said the two sides were effectively using oil as leverage without engaging in another direct military confrontation.
“In effect, both sides are trying to weaponise the oil barrel without firing another shot. Washington is trying to choke Iran’s ability to get its crude out, while Tehran is squeezing the artery through which everybody else’s crude gets through.
“It is quite the game of chicken.”
The possibility of crude prices remaining high has renewed concerns about inflation and increased expectations that the US Federal Reserve could raise interest rates at least once this year.
Although an unexpected loss of more than 20,000 US jobs last month had reduced expectations of a rate hike, renewed inflationary pressure from higher oil prices could force the Federal Reserve to reconsider its position.
Cleveland Fed President Beth Hammack told Yahoo Finance on Monday: “I would say in general, one 25-basis-point move probably doesn’t do a whole lot for the economy.
“So it’s probably some number of (movements). But I don’t want to prejudge what that number is going to be.”
Markets are also awaiting the release of US consumer price data on Wednesday, with the figures expected to provide important clues about the Federal Reserve’s next policy decision.
The continued deadlock between Washington and Tehran, alongside rising crude prices, has also influenced broader market sentiment. Asian equities were mixed after a relatively subdued session on Wall Street.
Shanghai, Wellington, Taipei and Manila recorded declines, while Hong Kong, Sydney, Singapore and Seoul posted gains. Tokyo’s market remained closed for a public holiday.
Key Market Figures Around 0215 GMT
- Hang Seng Index: Up 0.1% at 25,946.16
- Shanghai Composite: Down 0.5% at 3,948.19
- Nikkei 225: Closed for holiday
- West Texas Intermediate: Up 0.3% at $82.40 per barrel
- Brent North Sea Crude: Up 0.3% at $87.97 per barrel
- Euro/Dollar: Up at $1.1546 from $1.1543 on Monday
- Pound/Dollar: Up at $1.3512 from $1.3508
- Dollar/Yen: Down at 159.18 yen from 159.31 yen
- Euro/Pound: Up at 85.46 pence from 85.45 pence
- Dow Jones: Down 0.1% at 53,975.98 at close
- FTSE 100: Down 0.4% at 10,862.50 at close
Discover more from LN247
Subscribe to get the latest posts sent to your email.
