Oil prices soared on Monday after Iranian state media reported that the country was ending talks with the United States to end its ongoing war.
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U.S. crude oil soared as much as 8.5% to nearly $95 a barrel, an increase of nearly $8. International Brent crude oil rose as much as 7.3%, jumping $6 to more than $97 a barrel.
Heating oil, a substitute for jet fuel, also rose 7%, and wholesale gas prices rose 4%.
As a result of the recent decline in oil prices, retail gasoline prices on Monday were down $0.24 from this year’s peak. Still, gasoline prices remain on average 44% higher than before the war.
Government bond yields, which have a major impact on consumer borrowing rates, also rose along with energy prices.
The yield on the 10-year US Treasury note rose from 4.4% to 4.51%. The yield on the 30-year US Treasury rose to 5.02% from 4.97%.
Short-term bonds such as two-year and five-year bonds soared even more sharply.
Monday’s market action saw oil prices essentially return to mid-May levels, then falling for the next two weeks, as government officials continued to hint that some kind of deal with Iran to end the war was within reach.
Now in the fourth month of the war, the Iranian government has reportedly suspended talks and “exchange of documents through mediators” to protest the growing Israeli offensive in Lebanon.
Iran also said it was “determined to consider the complete closure of the Strait of Hormuz and the activation of other fronts, including the Bab el-Mandeb Strait, an important commercial waterway off the coast of Yemen.”
Investor in crisis
“The (nearly) closed Strait of Hormuz remains a focus for commodity market observers,” HSBC strategists said in a note Monday morning.
“So far, commodity markets have absorbed the shock better than in some worst-case scenarios, reflecting high pre-conflict inventories and a rapid shift toward reorientation of commodity trading,” they added.
“However, the longer the Strait of Hormuz closure lasts, the more stocks will be depleted and a critical functional low may be reached at some point, which could lead to more rapid (non-linear) price increases and true shortages.”
For most of May, daily vessel traffic through the Strait of Hormuz remained in the single digits, according to data from S&P Global Market Intelligence.
U.S. stocks also fell slightly on Monday following the latest headlines about the Iran war, but renewed momentum in AI stocks cushioned the decline following a series of product announcements by Nvidia overnight.
But the Russell 2000 index, which tracks small and medium-sized companies, whose largest component is worth just $70 billion, was down 1% in morning trading.
The difference between the Russell 2000 and more mainstream indexes like the S&P 500 and Nasdaq Composite Index illustrates the polarization of the market between indexes that are backed by big AI-powered companies and those that are not.
Internationally, stock markets sold much more broadly on Monday, with benchmark indexes in France, Britain and Italy falling about 1%. The pan-European Stoxx 600 fell 1.1%.
