Oil prices climbed on Tuesday whilst stock markets struggled as prospects of a swift agreement between the United States and Iran to reopen the Strait of Hormuz appeared increasingly remote.
Brent crude has gained $10 in less than a week as the two nations remain far apart on resolving the crucial waterway dispute, despite optimistic signals from the White House earlier this month.
Dan Coatsworth, head of markets at AJ Bell, said the rapid price movement was significant but not yet cause for alarm. The development has dampened investor confidence across European markets, leaving trading largely flat.
Paris stocks declined during midday trading whilst London and Frankfurt showed little movement. Asian equities closed mixed following lacklustre trading on Wall Street, with Tokyo markets shut for a public holiday.
Negotiations suffered a fresh setback on Monday when Donald Trump announced he would demand conflict compensation from Iran as part of any peace deal. The US president cited decades of alleged attacks and killings backed or carried out by Tehran.
The statement came as a direct counter to Iran’s insistence on receiving US reparations before any resolution can proceed.
The escalating demands from both sides threaten to delay a quick settlement. Main crude contracts had already jumped around five percent on Monday before rising a further two percent on Tuesday, with Brent briefly exceeding $90 a barrel.
Sustained elevated oil prices have reignited inflation concerns and increased the likelihood of higher interest rates. Whilst the unexpected loss of more than 20 000 jobs in the US economy last month reduced expectations of a Federal Reserve rate increase, surging price pressures could alter the central bank’s position.
Markets now await Wednesday’s release of US consumer price data, which will provide crucial guidance for the Fed’s next decision.
Patrick Munnelly at the Tickmill Group noted the Federal Reserve faces a growing dilemma. Labour market cooling supports a patient approach, but energy-driven inflation could erode that patience if it lifts headline consumer price index figures, petrol prices and household inflation expectations.
The coming days will prove critical in determining both the direction of oil markets and monetary policy responses.
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