Oil markets experienced significant volatility as hopes for a US-Iran peace deal were repeatedly challenged by renewed military actions in the region. Deutsche Bank analysts noted that Brent crude oil prices fell sharply below $100 per barrel, dropping from $103.54 at the end of last week to $97.87, a decline of approximately 5.48% since Friday, with prices reaching as low as $96.02 before news of fresh US and Israeli strikes in southern Iran targeting missile launch sites and mine-laying boats [1]. WTI crude also saw heavy losses, falling to a two-week low near $88.70 before recovering towards $92.00 as traders awaited further developments in the Middle East crisis [2].
The optimism for a potential peace deal between the US and Iran faded quickly after reports of US 'self-defense' strikes in southern Iran on Monday, and statements from Iran's Supreme Leader Mojtaba Khamenei warning that the US would no longer have a safe haven for its Middle East bases, while inviting Islamic countries to cooperate [2]. Iran’s Islamic Revolutionary Guard Corps (IRGC) reported intercepting a US MQ-9 drone and engaging an F-35 jet fighter that entered Iranian airspace [2][3]. Despite President Donald Trump indicating on TruthSocial that negotiations for a peace agreement were 'proceeding nicely,' the situation on the ground remained tense [3].
The closure of the Strait of Hormuz and a US naval blockade of Iranian ports have contributed to historic supply deficits, providing upward pressure on oil prices despite the initial declines [2]. The market's reaction extended beyond oil: US Treasury yields fell across the curve, with the 10-year note dropping more than 6 basis points to 4.510%, as bond markets responded to both the peace prospects and renewed hostilities [3]. European sovereign yields also saw declines, though some gains were given back as investors weighed the mixed signals from the region [3].
Looking ahead, investors are monitoring upcoming US economic data, including April's PCE Price Index, with Bank of America forecasting a 0.4% monthly and 3.8% annual increase, which could further influence market sentiment [3]. The ongoing uncertainty around the US-Iran situation, particularly regarding the reopening of the Strait of Hormuz and the potential for further military escalation, remains a key driver for both oil and broader financial markets [1][2][3].
CONCLUSION
Markets are caught between hopes for a US-Iran peace deal and the reality of renewed military strikes, resulting in sharp swings in oil prices and falling Treasury yields. The situation remains fluid, with geopolitical risks and supply concerns continuing to drive volatility across asset classes.