Oil prices whipsawed all week, closing higher than before President Trump's comments on Thursday that the ceasefire with Iran is "over." West Texas Intermediate crude (WTI) is now hovering around $75 a barrel, while Brent crude is around $79-$80 a barrel. This follows a period of extreme fluctuations, including a surge of over 6% for both Brent and WTI immediately after Trump's announcement. European gas futures also climbed significantly, with a 6% rise following the President's statements, building on a 4% increase the previous day.
The volatility in oil markets is directly linked to the escalating tensions and mixed signals surrounding the US-Iran conflict. The US had previously revoked waivers that allowed Iran to sell its oil and launched strikes against 80 sites in Iran in retaliation for attacks on commercial shipping in the Strait of Hormuz. Despite these aggressive actions, President Trump has indicated that negotiators can continue talks, and Iran's president has also expressed a willingness to end the war, albeit with certain conditions.
The uncertainty surrounding the Strait of Hormuz is a major factor impacting oil prices. Iran has demonstrated its ability to disrupt shipping in the strait and has even proposed Iranian sovereignty over this crucial waterway as a condition for peace. While this demand is unlikely to be accepted by the US or Gulf countries, it highlights the potential for sustained disruptions or even tolls on shippers, which would have significant implications for global energy supplies and prices. Asian economies, heavily reliant on Middle Eastern energy, are already making major adjustments to conserve energy, while US consumers are facing much higher gas prices.
Market reactions have been immediate and pronounced. Stocks surged earlier in the week on optimism about an end to the Iran war, with the Nasdaq gaining 3.3% and the S&P 500 futures initially turning lower before recovering. However, when Trump declared the ceasefire over, US equity futures slumped and the VIX, a measure of market volatility, jumped above 18. Oil majors like Exxon Mobil, Chevron, and ConocoPhillips saw sell-offs during periods of de-escalation but rebounded with rising tensions.
