Oil slumps nearly 4% on US-Iran deal hopes as stock rally eases

Business Standard

15-05-2025

Oil tumbled nearly 4 per cent as a potential US-Iran nuclear deal raised the prospect of increased global crude supply on Thursday, while stocks markets took a well-earned breather following their weeks-long recovery run.
Brent futures dropped over $2 to under $64 a barrel as US President Donald Trump, who is on a Middle East tour, said he was getting very close to securing a deal with Iran - and that Tehran had "sort of" agreed to the terms.
Ali Shamkhani, an adviser to Iran's Supreme Leader Ayatollah Ali Khamenei, had said in an NBC interview that the country would commit to never making nuclear weapons and get rid of its stockpiles of highly-enriched uranium.
Iran is OPEC's third largest producer. It pumps around 3 million barrels of oil per day (bpd), or around 3 per cent of total world output, but has been under strict sanctions since Trump quit the West's previous nuclear accord with Tehran in 2015.
It was not just Brent that was impacted. Europe's oil and gas stocks toppled back nearly 2 per cent, while government bonds of rival producers from Angola to Nigeria also took a hit.
BNP Paribas economist Paul Hollingsworth said the drop in oil compounded the deflationary pressures already in play in places like Europe amid lingering US trade tariff worries.
"Everyone is finding it difficult to navigate the volatility in the announcements," Hollingsworth said.
Key questions are now whether the trade war continues to moderate, how much pain has been caused and whether the volatility has driven a structural shift away from US assets and the dollar.
"Clearly we are in a better state of the world than we were a few weeks ago, but we do think that some damage has been done," Hollingsworth said.
The dive in crude nudged both the dollar and benchmark government bond yields, a proxy for national borrowing costs, down.
Official figures showed Britain's economy grew by a better-than-expected 0.2 per cent in March. Traders are also awaiting euro zone flash GDP figures for Q1 and key US data including April retail sales and jobless figures.
Germany's 10-year yield, the euro area's benchmark, was down one basis point to 2.68 per cent, but remained close to a multi-week high of 2.7 per cent hit on Wednesday. [GVD/EUR]
US Treasury yields were also sitting at a one-month top of just above 4.5 per cent, in part due to worries over Trump's budget package that would add trillions of dollars to the US debt. [US/]
DATA DELUGE
Investors were greeted with a plethora of good news earlier this week from a US-China trade-war truce to a raft of headline-grabbing investment deals from the Middle East during Trump's Gulf tour, in moves that breathed new life into battered global stocks.
But most of the optimism had died down by Thursday, leaving MSCI's broadest index of Asia-Pacific shares outside Japan down 0.15 per cent and Wall Street futures 0.5 per cent weaker [.N] after a near 30 per cent rebound in the Nasdaq since early April's trough.
"We've had a huge party, everyone's hung over, and now we're just recuperating and waiting for the next big party," said Tony Sycamore, a market analyst at IG.
While the trade deal between the US and China gave markets reason to cheer, the absence of clarity over Trump's trade policies has left markets with a sense of lingering uncertainty over the global economic outlook.
Traders were also awaiting Thursday's data on US retail sales and earnings from Walmart, a bellwether for the US retail industry, for a check on the pulse of consumer sentiment.
A disappointing outcome could feed fears of a recession in the world's largest economy, which would be a drag on markets.
Federal Reserve Chair Jerome Powell is also scheduled to speak later in the day, where the focus will be on any clues regarding the outlook for US rates.
In currencies, the dollar was struggling to extend its strong gains made at the start of the week, falling 0.7 per cent against the yen to 145.75. The euro rose 0.3 per cent to $1.12.
BNP Paribas' Hollingsworth said his bank's forecast was for euro-dollar to reach $1.20.
"We still view this as a structural shift out of dollar assets," he said. "It is a shift that is going to take place over a number of years."
Moves against the Korean won were particularly choppy for a second straight day, after news that South Korea's deputy finance minister Choi Ji-young met with Robert Kaproth, Assistant Secretary for International Finance at the US Treasury, to discuss the dollar/won market on May 5.
The Aussie dollar also jumped overnight after data showed Australian employment blew past expectations. It was last at $0.6432.
Elsewhere, spot gold regained its footing in Europe, although it was still 0.6 per cent lower on the day at $3,159 an ounce.