TOKYO – Oil prices plunged over 5 per cent and Asian stock markets rose on May 25 on hopes of a deal to end to the US-Iran war despite President Donald Trump downplaying its imminence.
The price of Brent crude dropped as much as 5.1 per cent to US$98.22 per barrel before recovering slightly, while the US benchmark, West Texas Intermediate, fell 5.2 per cent to US$91.57.
Japan’s Nikkei index led Asian markets higher with a 3 per cent jump. Hong Kong’s Hang Seng Index was up 0.9 per cent while Singapore’s Straits Times Index rose 0.4 per cent as at 9.39am local time.
The US dollar weakened on expectations that a deal to reopen the Strait of Hormuz and restore oil flows may be near. Gold rose on the weaker US currency.
Senior US officials said on May 24 that the US and Iran were nearing a deal that would reopen the Strait of Hormuz, though negotiations over key language were continuing and final approval from both sides could still take several days. However, Iran’s Tasnim news agency cautioned that the draft agreement could yet collapse because the US is obstructing some key clauses, including Tehran’s demand that its assets be unfrozen.
The broad improvement in risk sentiment follows weeks of stalemate between the US and Iran after the two sides agreed to a ceasefire in April. Traders are closely tracking the economic fallout from the Middle East conflict after concerns about elevated oil prices and higher inflation sent bond yields to multi-year highs earlier in May.
While any deal could still collapse, “financial markets appear to be, at this point, giving the reports the benefit of the doubt,” said Tony Sycamore, an analyst at IG in Sydney, wrote in a note to clients.
Monday’s drop in oil comes as signs emerge that ships are beginning to transit the Strait after a supertanker hauling Iraqi crude to China crossed the US blockade line into the Arabian Sea.
Thirty-three vessels, including oil tankers, container ships and other commercial craft, sailed through the Strait of Hormuz over 24 hours after obtaining authorisation from the Islamic Revolutionary Guard Corps Navy, the semi-official Iranian Students’ News Agency reported on May 25, citing an IRGC statement.
“While any reopening of Hormuz would be positive for global oil flows, the fluid nature of the negotiations and the unresolved differences suggest oil price volatility could persist for some time yet,” ANZ Bank strategists including David Croy wrote in a note to clients. BLOOMBERG, AFP
