Oi prices have risen slightly this morning to the highest levels in more than a week, as hopes receded of a deal between the US and Iran to end the war and reopen the strait of Hormuz, after Donald Trump demanded compensation for damage incurred by the US.
Brent crude futures and US crude futures both rose about 5% on Monday after the US president’s responded to Iran’s demands for compensation and an end to sanctions and military threats, before it will restart talks with the US. Those conditions largely reflect the terms of the memorandum of understanding signed by both sides in June, which has since broken down.
Iran has been negotiating with Oman about how to reopen the strait of Hormuz, a key shipping passage, defining new shipping lanes, and got closer to a pact. The strait has effectively been closed for months, after the US and Israel started attacking Tehran on 28 February.
Trump said at the White House on Monday: “We’re going to ask for money for the damage they’ve done over a 50-year period. So if there’s damages to be paid, I think Iran should pay those damages.”
He also said that he is happy to let economic pressure take its toll on Iran.
Brent crude is moving closer to $90 a barrel, rising 0.4% to $88.1 a barrel while US crude rose to $82.52 a barrel – the highest levels since 31 July for both global benchmarks.
Tony Sycamore, a market analyst at IG, told Reuters: “This is going to be almost a war of attrition now. You probably can see the [oil] market sitting around the $75 to $95 range while we wait to see who blinks first.”
Gold has eased after hitting its highest level in more than two months.
Spot gold dipped 0.3% to $4,377 an ounce, after rising to $4,434.84, its highest level since 5 June earlier in the session. Investors are eagerly awaiting Wednesday’s US inflation data for clues on the US interest rate outlook, after week jobs data last week prompted traders to scale back bets that the Federal Reserve will raise rates next month.
Jefferies analyst Mohit Kumar said: “We still retain the view that the Fed or the Bank of England will not hike rates, though the European Central Bank may be tempted to deliver another hike at the September meeting. Tomorrow’s inflation data would be key for setting the tome of markets for the coming weeks. Our view is that this month’s and next month’s inflation data would be benign and would offer some room for [Fed chair Kevin] Warsh not to hike rates.”
The Reserve Bank of Australia, the country’s central bank, kept its cash rate unchanged at 4.35% for a second meeting. It said the economy was slowing as expected but warned it may raise rates again if necessary to keep inflation under control.
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