- Oil prices started dropping last week after the Fed hiked interest rates.
- Trump said he was ready to consider diplomacy with Iran at the UN.
- Iran’s president said his country would fight until its last breath.
Oil prices held on to Wednesday’s gains after comments at the UN showed tensions between the US and Iran remained high. This was the first bullish session since Wednesday last week, when the Fed hiked interest rates. The decline over the past week came as supply concerns eased and traders cheered a brief pause in the war as the two nations opted for diplomacy at the UN.
Oil prices started dropping last week after the Fed hiked interest rates by 25 basis points. Moreover, policymakers assumed a hawkish tone, cautioning that inflation remains too high and must come down to the 2% target. They forecast one more rate hike this year to cool the economy. High borrowing costs hurt the business environment, reducing demand for oil and sending prices lower.
Brent futures (Source: ICE, Bloomberg)
Furthermore, traders had been keen on developments in Saudi Arabia after an attack on a major oil pipeline. Crude prices fell after reports indicated that the pipeline would reopen in a few days. However, experts doubted this. Still, the fact that the country immediately found an alternative way to export its oil eased supply concerns. As a result, prices pulled back.
Finally, downward pressure on prices followed Trump’s announcement that he was ready to consider diplomacy with Iran at the UN. The likelihood of a peace deal lowered the risk premium on oil. The conflict had escalated in recent weeks, causing significant supply concerns. However, remarks at the meeting showed tensions remain high, and the slightest move could restart the conflict.
Trump said the US would annihilate Iran if there was no deal to end the war. Meanwhile, Iran’s president said his country would fight until its last breath. These remarks show neither country is backing down. With such stances, it will be difficult to come to an agreement.
“The United States president described us as terrorists. We have been the victims of terrorism,” Pezeshkian said, according to a live translation of his speech at the United Nations General Assembly. Pezeshkian also asserted that his country will continue to fight back “until our last breath.”
If there is no deal, the war will likely continue, and prices might resume their rally. On the other hand, if talks resume, hopes of a peace deal could send prices lower.
