Oil prices tumbled on Monday as a pause in tit-for-tat strikes between the United States and Iran boosted hopes for a return to their ceasefire and negotiations on reopening the Strait of Hormuz.
The United States held fire at the weekend after 13 days of attacks on sites in the Islamic republic, and Donald Trump’s UN envoy said the US president was “giving talks some space”.
Tehran said in turn it would stop its retaliatory attacks on regional neighbours, handing Gulf shipping and the oil industry a respite.
The two resumed hostilities this month, breaking a fragile truce, after Iran attacked ships passing through Omani waters in the Strait of Hormuz, sparking a pattern of escalation.
That derailed diplomatic efforts between Washington and Tehran, but the conflict then expanded beyond the vital energy corridor when Iran-backed Houthi rebels in Yemen hit Saudi vessels in the Bab al-Mandeb Strait, a crucial passage into the Red Sea.
Crude prices soared on the flare-up, with Brent breaking back above $100 a barrel last week for the first time since May. News that shipping continued in the Red Sea helped investors pare the gains on Friday.
However, Trump’s decision to hold off on more strikes and Iran’s claims on Sunday that it had made progress in talks with Oman on management of the Strait of Hormuz provided some much-needed relief.
The discussions focused on “common principles and operational mechanisms” for ensuring the safe passage of shipping through the strait while respecting the sovereign rights of the two states, Iran’s foreign ministry spokesman Esmaeil Baqaei said.
A report also said mediator Pakistan was looking at resuming US-Iran peace talks, following a push initiated by China.
Both main oil contracts sank on Monday, with Brent shedding more than seven percent at one point to briefly drop back below $90.
“It looks as if developments in the Middle East have moved in a positive direction over the weekend, adding some credibility to the notion that oil above $100 a barrel seems to induce de-escalatory behaviour from both sides,” wrote National Australia Bank’s Sally Auld.
– Inflation fears ease –
The positive developments eased worries about a reignition of inflation and a fresh round of interest rate hikes, in turn helping equity markets higher.
However, concerns about the sustainability of the AI boom and questions over the eye-watering sums pumped into the sector continue to dog traders, as tech firms bear the brunt of selling.
Seoul, which has led the rout in recent weeks, rose one percent with chip giants SK hynix and Samsung enjoying some much-needed buying interest.
Tokyo rose, though tech firms Advantest and Kioxia suffered more hefty selling pressure.
Hong Kong, Sydney, Shanghai, Wellington, Singapore, Mumbai and Manila were also up.
London, Paris and Frankfurt rose at the open.
Taipei and Bangkok fell, while Jakarta was also in retreat following the surprise resignation of Indonesian central bank boss Perry Warjiyo citing personal reasons.
Traders will be keenly awaiting the release of earnings from SK hynix, Samsung and Japan’s Kioxia this week, while US titans Microsoft, Meta, Apple and Amazon are also due, with focus on their outlooks and spending plans.
Tim Waterer of KCM Trade said: “Traders remain somewhat nervy about the scale of the capex being committed, given lingering concerns over how long the return-on-investment phase may take to fully materialise.”
Also in view this week is the Federal Reserve’s policy decision in light of the latest US-Iran flare-up and recent data indicating inflation easing.
Bets on a hike have risen over the past week, though analysts expect officials to stand pat on Wednesday.
However, Jenny Zeng at Allianz Global Investors warned: “While the (policy board) is likely to remain on hold in July, we continue to expect 50 basis points of tightening by year-end.”
In company news, China’s leading memory chipmaker CXMT jumped 530 percent on its market debut in Shanghai to take it past megabank ICBC as the mainland’s most valuable company, before later paring the gains to end up 465 percent.
The breathtaking surge came after the Anhui-based company had raised $9.8 billion in a blockbuster initial public offering, Bloomberg News reported, making it China’s biggest mainland tech share sale.
– Key figures around 0810 GMT –
West Texas Intermediate: DOWN 5.7 percent at $84.20 a barrel
Brent North Sea Crude: DOWN 6.1 percent at $90.89 per barrel
Tokyo – Nikkei 225: UP 0.5 percent at 64,931.19 (close)
Hong Kong – Hang Seng Index: UP 1.0 percent at 25,207.18 (close)
Shanghai – Composite: UP 1.2 percent at 3,858.24 (close)
London – FTSE 100: UP 0.5 percent at 10,786.07
Euro/dollar: UP at $1.1400 from $1.1373 on Friday
Pound/dollar: UP at $1.3341 from $1.3323
Euro/pound: UP at 85.45 pence from 85.34 pence
Dollar/yen: DOWN at 163.46 yen from 163.84
New York – Dow: UP 0.5 percent at 51,947.25 (close). AFP
