Oil prices climbed around 3% on Tuesday morning after Iran declared plans for retaliation, following a “self-defense strike” by U.S. forces in the Strait of Hormuz. In a bit of a clash, U.S. stocks also saw an uptick as investors held onto hopes for a peace agreement.
Brent crude oil surged by 3.9%, reaching $97.07 per barrel. Conversely, West Texas Intermediate futures were at $93.82, which is down 2.9% from Friday’s closure.
Monday didn’t see any WTI settlements due to the Memorial Day holiday.
Iran reacted on Tuesday by stating it would retaliate against what it calls a violation of a ceasefire agreement. This came after U.S. Central Command confirmed an attack on an Iranian vessel suspected of laying mines in the strait.
Despite rising tensions, U.S. stocks appeared to rally on Tuesday morning, buoyed by positive indications from both the Trump administration and Iranian media regarding ongoing negotiations.
By 10:15 a.m. ET, the S&P 500 and Nasdaq had increased by 0.8% and 1.3%, respectively, while the Dow Jones Industrial Average remained relatively flat.
On Monday morning, President Trump shared on social media that talks with Tehran were “progressing well,” although he emphasized that the United States would only accept a “Great Deal for everyone, or no deal at all.”
Furthermore, Iran’s semi-official Tasnim news agency mentioned that recent discussions with the U.S. were “generally positive,” though any peace agreement hinged on the release of $24 billion in Iranian funds that have been frozen.
In another social media post, the president stated he had recently called upon Saudi Arabia, Qatar, Pakistan, Turkey, Egypt, and Jordan to sign the Abraham Accords, which are aimed at normalizing relations between Israel and Arab nations.
Hours later, the latest U.S. airstrike occurred.
The strong performance of the stock market is encouraging for the U.S. economy, with the S&P 500 index enjoying its longest winning streak since late 2023 last week. The Dow rose by 2.1% that week, marking its third gain in the last four weeks, while the Nasdaq saw a 0.5% increase, its seventh gain in eight weeks.
However, rising inflation, which has hit a three-year high partly due to the Iran conflict and persistent high oil prices, raises concerns about potential Federal Reserve rate cuts in the near future.
According to CME FedWatch, which analyzes federal funds futures prices, there’s now a 10% chance of a quarter-point rate hike at the July Fed meeting, a noticeable increase from less than 1% a month prior.
Analysts also cautioned that oil prices may continue to rise, as damage to facilities in the Middle East could elongate this ongoing global energy supply crisis.
UBS, a Swiss investment bank, warned last Friday that total oil production losses might exceed 1 billion barrels by the end of this month. They noted that global oil inventories dropped by a collective 246 million barrels in March and April.
The global oil market is currently “extremely undersupplied,” as energy exporters like the United States scramble to adjust their supply strategies.
