Oil prices gained as the immediate prospect of a deal to reopen the Strait of Hormuz faded. Treasury Secretary Scott Bessent had initially spurred optimism, telling CNBC's "Squawk Box" that a deal ensuring "freedom of movement" in the strait could be hours away. This led to a temporary dip in oil prices and a surge in stock markets. However, expectations were dampened when Iranian state media reported a draft plan that would block passage for U.S. and Israeli ships, a proposal swiftly dismissed by the Trump administration as a nonstarter.
Despite the lack of an immediate agreement, stock markets, including the Dow Jones Industrial Average, continued to hit record highs. This ongoing investor optimism is largely attributed to an artificial intelligence-fueled tech rally and the market's "deeply entrenched optimism bias," as noted by Helima Croft, global head of commodity strategy at RBC Capital Markets. Investors are holding onto hopes that both the U.S. and Iran have incentives for a diplomatic end to the conflict, even though Iran has repeatedly denied actively negotiating with the U.S.
The conflict in the Strait of Hormuz, a vital passageway for global oil trade, has caused a significant global energy supply shock, driving up gas prices and exacerbating inflation. While the U.S. insists on the strait remaining an international waterway free of tolls, Iran reportedly seeks to impose a service fee. Analysts like Bob McNally of Rapidan Energy Group warn that oil prices could spike back to peak levels if military escalation is not contained or if market optimism diminishes due to dwindling oil inventories.
