Crude oil prices plummeted Thursday as optimism surrounding a potential U.S.-Iran nuclear agreement raised expectations of increased global supply. Brent crude slipped by more than $2, falling below $64 per barrel, while global stock markets took a breather following weeks of steady gains.
The decline in oil came amid comments from former President Donald Trump, who, during his Middle East trip, suggested that a new deal with Iran was close. Trump said Tehran had “sort of” accepted the terms, fueling speculation that sanctions could ease and Iranian oil might return to global markets.
Ali Shamkhani, a senior adviser to Iran’s Supreme Leader, told NBC News that Iran was prepared to forgo nuclear weapons and eliminate its stockpile of enriched uranium. Iran, the third-largest oil producer in OPEC, currently pumps about 3 million barrels per day – roughly 3% of the world’s total supply – but has faced heavy sanctions since Trump withdrew from the previous nuclear deal in 2015.
The ripple effects of the oil price drop were widespread. European oil and gas stocks sank by nearly 2%, and sovereign bonds from oil-exporting nations like Angola and Nigeria also suffered losses.
Paul Hollingsworth, an economist at BNP Paribas (USOTC:BNPQY), noted that falling energy prices were compounding existing deflationary pressures, especially in Europe, where trade tensions with the U.S. have added to economic uncertainty. “Markets are struggling to interpret the mixed signals from recent announcements,” he said.
Investors are now focusing on whether the easing of trade tensions marks a lasting shift or just a temporary pause, and whether the volatility has triggered a deeper move away from U.S. assets and the dollar. “Things are certainly better than a few weeks ago, but there’s no question that some damage has already been done,” Hollingsworth added.
The sell-off in crude oil also weighed on the dollar and U.S. Treasury yields, which dipped as investors reassessed risk. Meanwhile, the U.K. reported stronger-than-expected growth of 0.2% in March. Traders are watching closely for the euro zone’s first-quarter GDP numbers, as well as key U.S. reports on retail sales and jobless claims.
Germany’s benchmark 10-year bond yield fell slightly to 2.68%, just below Wednesday’s multi-week high of 2.7%. In the U.S., Treasury yields hovered above 4.5%, in part due to market concerns over Trump’s budget proposal, which would significantly increase national debt levels.
Markets Hit Pause After Recent Surge
Earlier this week, investor sentiment had been boosted by a temporary truce in the U.S.-China trade war and several major investment deals announced during Trump’s Gulf visit. These developments helped lift global equities from recent lows, with the Nasdaq surging nearly 30% since its April bottom.
However, by Thursday, momentum had slowed. MSCI’s broad Asia-Pacific index outside Japan slipped 0.15%, while U.S. futures pointed to a 0.5% dip for Wall Street. “We’ve had a massive rally – now we’re in recovery mode, waiting for the next catalyst,” said Tony Sycamore, a market analyst at IG.
Despite the positive sentiment around trade progress, uncertainty remains high due to the lack of concrete details on Trump’s broader economic policies. Investors are also looking ahead to U.S. retail sales figures and earnings from Walmart (NYSE:WMT) for insights into consumer behavior.
Any signs of weakening demand could raise concerns about a potential recession in the U.S., which would have global ramifications. Meanwhile, all eyes are on Federal Reserve Chair Jerome Powell, who is set to speak later in the day and may offer guidance on future interest rate decisions.
In currency markets, the dollar struggled to hold earlier gains, falling 0.7% against the yen to 145.75. The euro edged higher to $1.12, gaining 0.3%. BNP Paribas’ Hollingsworth said the bank sees a longer-term trend of investors moving away from dollar-based assets, with a forecast of the euro reaching $1.20.
Currency volatility also continued in South Korea, where the won saw sharp swings for a second straight day. The moves came after South Korea’s deputy finance minister Choi Ji-young met with U.S. Treasury official Robert Kaproth on May 5 to discuss exchange rate dynamics.