Oil tumbles to nearly $90 on US-Iran peace deal hope
Oil prices slid close to $90 a barrel and interest rate hike fears faded yesterday amid optimism over the prospect of a US-Iran peace deal.
Brent crude tumbled below $92 a barrel to the lowest level in six weeks.
It had closed at just under $104 a week ago and spiked to more than $126 last month. Brent was trading at $72 before the war began.
The latest fall put oil on course for a 19 per cent drop over the course of May – the biggest since the conflict erupted at the start of March. Oil has fallen by 11 per cent this week alone.
Flagging: Brent crude tumbled below $92 a barrel to the lowest level in six weeks
Borrowing costs – which have surged since the war broke out – have also eased over the past couple of weeks, with the yield on ten-year UK bonds, known as gilts, down from 5.2 per cent earlier this month to about 4.8 per cent yesterday.
It is in part due to fears now abating that the war would stoke a series of Bank of England interest rate hikes.
Yesterday, markets were betting they were most likely to go up just once this year – and not until September. In a speech yesterday, Bank governor Andrew Bailey appeared to be in little hurry to raise them sooner.
He said that while rate-setters were obliged to bring inflation down towards 2 per cent, ‘attempting to bring inflation back to the target too quickly may cause undesirable volatility’.
Wall Street stocks hit record highs yesterday on the deal hopes, but in London, the FTSE 100 slipped 0.2 per cent, or 16.68 points, to 10409.28. The US and Iran reportedly reached an agreement on Thursday to extend a ceasefire and lift restrictions on shipping through the Strait of Hormuz, though US President Donald Trump had yet to approve the deal and Iranian state media said it had not been finalised.
At the heart of the economic maelstrom caused by the war is the Strait of Hormuz. A fifth of the world’s oil and gas flows through the strait in peace time, but it has been effectively closed for the past three months.
That has already sent petrol and diesel prices surging, stoked fears that jet fuel supplies could run out, and will result in a £221 increase in Britain’s energy price cap in July.
Experts warn that even when the strait reopens, it will be months before production and supplies get back to normal.
But Derren Nathan, of Hargreaves Lansdown, said: ‘Oil traders are taking an optimistic view that the end could be in sight for disruption in the region, and Brent crude oil prices have taken another step down.’
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