Crude Oil Prices Rise Following Easing of US-Iran Tensions

Oil Prices Rally Amid Escalating US-Iran Conflict

A renewed advance in oil prices sent bonds lower after the US and Iran failed to agree on terms to end their war, dashing hopes for a revival of the Strait of Hormuz and stoking inflation worries.

US crude rose to around $99, with the near-halt of traffic through the waterway reigniting worries about further energy disruptions. The Treasury market, which has priced out the odds of Federal Reserve rate cuts this year amid the Middle East conflict, saw an increase in yields. Another rally in chipmakers left the S&P 500 at all-time highs, but most of the US equity benchmark's shares retreated.

The ceasefire between the US and Iran reached a precarious moment on Monday, with President Donald Trump stating that the deal was on "massive life support." Trump called Iran's response to his proposal a "piece of garbage." The conflict with Iran will be on Trump's agenda when he meets Chinese President Xi Jinping later this week. Revenue that China provides to Iran, as well as potential weapons exports, would be among the topics discussed at the summit.

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Economic Outlook Remains Uncertain

On the economic front, a fresh batch of data this week is likely to affirm Americans' growing frustration with inflation. Economists see a 0.6% increase in the consumer price index for April, based on the Bloomberg survey median estimate. This comes on the heels of March's biggest monthly advance since 2022.

Tuesday's CPI report will be a "spicier" set of figures, the first in a series of readings this week that will feed into the Fed's preferred measure of inflation. Goldman Sachs Group Inc. economists, including Jan Hatzius, stated that elevated oil prices will keep consumer energy prices elevated and in turn boost core inflation. They also noted that risks are tilted to the upside if disruptions to oil markets and associated oil price increases prove more persistent than expected.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

Global Market Sentiment

Elsewhere, UK bonds were swept up in another selloff as investors grew increasingly anxious about Britain's finances, given the risk of fresh challenges to Prime Minister Keir Starmer's leadership.