Oil Prices Spike After Trump Rejects Iran Truce Offer as Brent Tops $107
Oil prices spiked on Monday after U.S. President Donald Trump rejected an Iranian offer of a seven-day truce, reviving concerns about inflation and rattling financial markets around the world. Brent crude, the international benchmark, climbed more than 3 percent to trade above $107 a barrel, wiping out the losses it had posted at the end of last week.
A Brief Reprieve Ends
Prices had fallen by more than 2 percent on Friday when news of the offer first surfaced. Iran presented a plan at last week’s United Nations General Assembly for a halt in hostilities that would see the Strait of Hormuz reopened. Tehran said the proposal was relayed to Washington through Qatari mediators. Traders hoped the plan might ease a supply crisis that has pushed up energy costs globally, but the optimism did not last the weekend.
Speaking to reporters outside the White House, Trump said plainly that he rejected the proposal. He also told the news outlet Axios that he still expects negotiators to keep talking, adding that Iran wants a deal but not the one he wants. No new meeting has been confirmed.
Why the Strait of Hormuz Matters
The waterway normally carries about a fifth of the world’s oil and gas supply, which is why any disruption there moves prices quickly. Iran says it is holding to its conditions for reopening it, including the release of frozen assets, the lifting of sanctions on its oil and an end to the U.S. naval blockade. The strait is now central to the conflict between the United States and Iran, which began with U.S.-Israeli strikes in February.
Risks have widened beyond the Gulf. Iran-backed Houthi forces have seized Yemen’s Red Sea coast, including the area around the Bab al-Mandab Strait, another vital shipping lane. Diesel prices in Europe and the United States have reached record highs, adding to pressure on households and businesses.
Markets React
The reaction spread well beyond the oil market. Oil futures at one point surged more than 4 percent before easing back from their peak. Bond yields rose as investors worried that higher energy costs would keep inflation elevated. Longer-dated U.S. Treasury yields reached fresh multi-decade highs, and a gauge of global bonds recently topped 4 percent for the first time since 2007.
Stocks were mixed. Wall Street’s main indexes fell, while Seoul shares dropped 2.7 percent after reopening from a long holiday break and other Asian markets also slipped. European markets were modestly higher. Nvidia gained after announcing a record $150 billion share repurchase authorization, which offset some of the gloom.
Rate Hike Bets Grow
Higher oil prices are feeding expectations about central bank policy. Traders are pricing in roughly a 68 percent chance that the Federal Reserve will raise interest rates by at least 25 basis points at its meeting at the end of October, which would be a second consecutive increase. The stronger dollar has also pushed gold lower from its summer highs.
Some Supply Relief
There were a few positive signs. Crude exports from key Middle East producers rebounded in September to 12.8 million barrels per day, the highest level since the war began, as Saudi Arabia and the United Arab Emirates raised shipments. Trump also said more than 20 million barrels moved through the strait over the weekend. Separately, Washington and Beijing extended their trade truce through January 10, which gave investors some relief on trade.
What to Watch
Analysts say the market is still betting that both sides will eventually return to the negotiating table, even if it takes weeks of tough public rhetoric first. Until a deal emerges, oil is likely to remain volatile, moving with every statement from Washington and Tehran. Traders will also watch a series of key U.S. economic reports this week for further signs of how energy costs are feeding into inflation.
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