West Texas Intermediate (WTI) crude oil prices retreated to around $89.50 on Thursday, down 0.86% on the day, as investors trimmed positions following a recent rally driven by heightened Middle East tensions [1]. The pullback comes amid ongoing diplomatic negotiations between the United States and Iran, despite recent military strikes and renewed rhetoric from both sides. Media reports indicate that talks remain active, with a diplomatic source cited by CNN confirming ongoing discussions, and The Wall Street Journal reporting that US President Donald Trump conveyed to Tehran via Qatar that recent attacks did not signal a return to full-scale war [1].
President Trump stated on Thursday that the United States would hit Iran "very hard" overnight and raised the possibility of taking control of Kharg Island, Iran's main oil export terminal, which previously accounted for roughly 90% of Iran's crude oil exports before the conflict [1][2]. However, within hours, Trump expressed uncertainty about America's willingness to undertake such an operation, and crude oil futures eased toward $89 [2]. The market appeared to interpret these threats as posturing, especially since the US Navy is already blockading Iranian ports and the Strait of Hormuz is largely shut, with seizing Kharg Island seen as adding occupation risk without reopening key chokepoints [2].
US economic data released this week showed persistent inflationary pressures. The Producer Price Index (PPI) rose 6.5% year-over-year in May, exceeding the 6.4% consensus and up from 5.7% prior, while the Consumer Price Index (CPI) accelerated to 4.2% year-over-year, its fastest pace in three years [1][2][3]. However, core PPI held steady at 4.9% year-over-year, below the 5.4% forecast, and core CPI edged up to 2.9% from 2.8% [2][3]. Initial jobless claims also rose to 229,000 versus 219,000 expected [2]. The energy shock from the US-Iran conflict is cited as a key driver of these inflation numbers [2][3].
Despite the hot inflation data and geopolitical risks, the Dow Jones Industrial Average (DJIA) closed only fractionally lower near 50,200, after a volatile session that saw swings between 50,000 and 50,400 [2]. Rate futures are pricing next week's Federal Open Market Committee (FOMC) decision as a near-certain hold, but markets are increasingly considering the possibility of another rate hike later this year if energy-driven inflation persists [1][2]. The upcoming June 16-17 Fed meeting will feature a new dot plot and the first decision under the new Fed Chair [2].
On the currency front, the US Dollar Index (DXY) traded around 100.23, its highest level since April 6, supported by hawkish Fed expectations and safe-haven demand amid the ongoing US-Iran tensions [3]. The Japanese Yen struggled near 160.50 against the US Dollar, with intervention fears capping upside, while elevated oil prices and Japan's reliance on imported energy continued to weigh on the currency [3].
CONCLUSION
WTI oil prices have retreated as ongoing US-Iran diplomatic efforts ease immediate supply fears, despite persistent geopolitical tensions and strong US inflation data. Markets remain volatile, with investors closely watching both the Federal Reserve's upcoming policy decision and further developments in the Middle East. The combination of energy-driven inflation and geopolitical uncertainty continues to drive market sentiment and expectations for future monetary policy.