Oil drops below $80 on US-Iran deal

Oil prices dropped below $80 a barrel Tuesday on optimism over the promised reopening of the Strait of Hormuz, easing inflation pressures on global economies even though traders are eyeing the risk of Iranian “service fees” on ships transiting the strait.

Oil hit a three-month low as Brent North Sea crude, the international benchmark, dropped 4.0 percent to $79.87 a barrel, dipping below $80 for the first time since early March, before edging back up.

The main US oil contract, West Texas Intermediate, slid 4.7 percent to under $77 a barrel.

US President Donald Trump said the Strait of Hormuz would “completely open” once Washington and Iran sign their peace agreement on Friday in Switzerland.

Iranian media reported that three oil tankers and two cargo ships had already passed through.

Wall Street was cautious, with the Dow adding 0.8 percent, but the broader S&P 500 dipped 0.2 percent and the tech-heavy Nasdaq shed 0.4 percent.

“It’s normal for markets to want to consolidate their gains after strong up days, especially now that we’re still trying to figure out exactly what’s in the agreement that’s been signed,” said Steve Sosnick of Interactive Brokers.

Europe’s main markets closed higher, while Asia ended mixed.

“Although the deal has not been formally signed, there already appears to be a peace dividend for markets,” said Kathleen Brooks, research director at trading group XTB.

“We are seeing European markets play catch-up with the US, and this could continue, as some European indices remain below their pre-war levels,” including London’s FTSE 100 index, she added.

Tehran blockaded the strait after the US and Israel launched their war against Iran on February 28, prompting Washington to later halt shipping to and from Iranian ports.

Despite the fall-off in oil prices analysts warned that market conditions could remain tight for weeks or even months after the end of the conflict.

“Oil prices, for now, are hovering at the lowest level in two months… but it’s still trading at a premium compared to pre-conflict levels, demonstrating the ongoing uncertainties about supplies,” said Susannah Streeter, chief investment strategist at Wealth Club.

US Energy Department data meanwhile showed that America’s strategic oil stockpiles sank last week to their lowest level since 1983 — indicating sustained demand to rebuild them even if the Mideast conflict ends.

Focus this week is also on a wave of central bank decisions.

US Federal Reserve Chairman Kevin Warsh kicked off his first meeting in charge of the central bank’s rate-setting committee on Tuesday, with policymakers largely expected to keep rates steady as the fallout of the Iran war ripples through the world’s largest economy.

The Bank of England is also expected to stand pat.

The yen was little changed after the Bank of Japan on Tuesday raised interest rates to their highest level since 1995.

Tech stocks received a boost from another blockbuster performance by Elon Musk’s SpaceX, which was up around 10 percent — and briefly almost 20 percent — for a second session in a row after listing at the end of last week.

– Key figures around 1530 GMT –

Brent North Sea Crude: DOWN 3.9 percent at $79.92 a barrel

West Texas Intermediate: DOWN 4.7 percent at $76.95 a barrel

New York – Dow: UP 0.8 percent at 52,062.49 points

New York – S&P 500: DOWN 0.2 percent at 7,538.23

New York – Nasdaq: UP 0.4 percent at 26,573.34

London – FTSE 100: UP 0.7 percent at 10,504.47 (close)

Paris – CAC 40: UP 0.8 percent at 8,446.78 (close)

Frankfurt – DAX: UP less than 0.1 percent at 24,914.76 (close)

Tokyo – Nikkei 225: UP 0.1 percent at 69,404.50 (close)

Hong Kong – Hang Seng Index: DOWN 1.4 percent at 24,493.95 (close)

Shanghai – Composite: DOWN 0.1 percent at 4,091.89 (close)

Seoul – Kospi: UP 2.1 percent at 8,726.60 (close)

Euro/dollar: UP at $1.1603 from $1.1592 on Monday

Pound/dollar: UP at $1.3421 from $1.3416

Dollar/yen: UP at 160.46 yen from 160.30 yen

Euro/pound: UP at 86.46 pence from 86.40 pence