Oil prices experienced dramatic volatility as Iran confirmed it is reviewing a U.S. peace proposal with talks gaining pace, though key issues remain unresolved. According to latest reports, oil prices swung sharply as hopes of a deal rose, then uncertainty pushed them back above $100 a barrel. The latest developments come after Trump paused a military operation to reopen the Hormuz Strait to commercial shipping to give advanced peace talks with Iran a chance to deliver "a complete and final deal." As per UPI, Brent crude fell more than $10 a barrel to $99, while American crude dropped $13 to $92 a barrel during earlier optimism about the peace negotiations.
Iranian foreign ministry spokesman confirmed to CNBC that Iran was in receipt of the U.S. proposal and was "evaluating it." However, Iran's semi-official Iranian Students' News Agency reported that part of the plan "contains excessive and unrealistic proposals which have been strongly rejected by our country's authorities in recent days." According to The Hindu BusinessLine, Iran is expected to send a response to the US proposal via mediator Pakistan in the next two days, with the Trump administration anticipating Iran will give its response with regard to the most critical elements of the plan. Washington's one-page memorandum of understanding would lead to the gradual reopening of the Strait of Hormuz and lifting of the American blockade on Iranian ports, according to multiple reports.
The potential breakthrough comes as US President Donald Trump faces increasing pressure to end the war he started alongside Israel at the end of February. China is one of Iran's largest customers for its oil exports and hopes were riding on the possibility that China would prevail on visiting Iranian foreign minister Abbas Araghchi to persuade Iran to uphold the current truce with the United States, so as not to throw a wrench into Trump's visit to Beijing on May 14, the first by any U.S. president in almost a decade. At a meeting in Beijing, China's Foreign Minister Wang Yi urged Iranian counterpart Abbas Araghchi to keep negotiating, saying "a resumption of hostilities is inadvisable."
Crude has climbed by about 40% since the conflict started at the end of February, cutting off hundreds of millions of barrels of Persian Gulf oil from global markets. According to The Hindu BusinessLine, the effective closure of Hormuz has choked off a fifth of the world's liquefied natural gas. Equinor Chief Financial Officer Torgrim Reitan said on the company's quarterly earnings conference call that when the Strait opens, oil will take half a year to get back to normal, while gas recovery will take much longer. The disruption threatens to intensify competition for a limited global pool of seaborne supply as Europe refills gas inventories before next winter. Maersk has maintained its profit guidance for the year, even as it reported a spike in fuel costs and warned that traffic through the strait of Hormuz "remains at a near standstill."
Analysts said investor confidence was boosted mainly by the fact the cease-fire was holding and signs that the economy was nowhere near as badly affected by the war as feared. "This helped oil prices to come back down again and ease fears about a renewed escalation, with investors a bit more hopeful that an extended stagflationary shock would be avoided," Deutsche Bank wrote in a note. It added that investor confidence was also bolstered by new U.S. economic data showing among other positive indicators, that job vacancies declined less than anticipated in March, saying the numbers "cemented the case that the conflict's wider economic impact was still fairly muted." The market traded like a casino where the fire alarm suddenly stopped ringing just as the champagne carts rolled back onto the floor, with analysts noting that hopes were also riding on the possibility China would prevail on visiting Iranian foreign minister Abbas Araghchi to persuade Iran to uphold the current truce.
