- Trump extended the ceasefire deal with Iran.
- Iran seized two ships in the Strait of Hormuz.
- US retail sales increased by 1.7% from a previous reading of 0.7%.
Oil prices soared on Wednesday after reports that Iran had seized two ships in the Strait of Hormuz. The news dampened optimism after Trump extended the ceasefire to allow Iranian leaders to agree on a proposal to end the war.
WTI crude oil (Source: Heritage Petroleum)
Uncertainty regarding the outcome of the US-Iran war has sent oil prices higher this week. Market participants have had to deal with sudden developments that have shifted sentiment. At the end of last week, oil prices fell after Iran reopened the Strait of Hormuz. Furthermore, traders hoped that talks between the US and Iran in Pakistan would yield a longer-lasting deal that would end the war.
However, reports over the weekend revealed that the US had seized an Iranian cargo ship. In retaliation, Iran closed the Strait on Monday, rekindling concerns about oil supplies. At the same time, the US said it would maintain its blockade of the Strait.
Afterwards, investors were worried about the end of the two-week ceasefire deal and what it would mean for the war. Fortunately, Trump extended the ceasefire, stating that Iranian leaders needed time to present a unified proposal for a deal. Meanwhile, Iran said it would not attend the planned talks in Pakistan. It went further to seize two ships in the Strait of Hormuz on Wednesday, raising worries about an escalation of the war. Consequently, oil resumed its bullish trend.
Uncertainty regarding the war and disruptions in oil supply will likely keep the market tight. Market participants will keep watching developments for clues on the future.
Elsewhere, traders assessed US data, which revealed solid consumer spending in March. Retail sales increased by 1.7% from a previous reading of 0.7%. Meanwhile, economists had expected sales to increase by 1.4%. The upbeat data pointed to a strong economy, leading to a decline in expectations for Fed rate cuts.
In recent months, bets on a Fed rate cut have fallen amid concerns about inflation. With rising oil prices, inflation has increased, forcing policymakers to push back rate cuts. If the war continues, the central bank might have to raise rates to cool the economy. Such an outcome would also lower demand for oil, which could lower prices.