Oil spikes after Trump says he rejects Iran truce offer, markets jittery

Global oil prices rose sharply on Monday after US President Donald Trump rejected a proposed seven-day truce from Iran, reviving fears of supply disruption and unsettling markets.

What happened

Tehran last week presented a plan at the UN General Assembly for a seven-day halt in hostilities that would see the Strait of Hormuz reopened. The waterway is a key energy route. President Trump told reporters outside the White House,

“I reject their proposal”

and later told Axios he expects negotiations to resume.

President Trump’s comments and follow-up

In an interview with Axios, Mr Trump said:

“They want to make a deal, but it is not the deal that I want to make. It is what we would have maybe agreed to a year ago.”

He added,

“They overplayed their hand.”

Axios reported, citing sources familiar with the matter, that indirect talks between Washington and Tehran could take place as early as Monday.

Iran’s conditions

According to the report, Iran was standing by conditions for reopening the Strait of Hormuz that included the release of frozen assets, the lifting of sanctions on its oil and an end to the US naval blockade.

Market reaction

Oil which had fallen more than 2 percent on Friday after news of Tehran’s offer, bounced back at the start of the new week. At around 0715 GMT, West Texas Intermediate was up 1.8 percent at $94.07 per barrel and Brent North Sea Crude was up 2.8 percent at $107.26 per barrel, with Brent having surged more than 3 percent back above $107 a barrel.

Broader financial effects

The rise in oil prices stoked inflation concerns and weighed on stock markets. Asian equities were mixed: Seoul fell 2.7 percent as it reopened, while Tokyo, Shanghai, Manila, Mumbai, Bangkok and Jakarta also dropped. There were gains in Hong Kong, Sydney, Singapore and Wellington, and London, Paris and Frankfurt opened higher.

Bond yields climbed, with a gauge of world bonds topping four percent last week for the first time since 2007, according to Bloomberg. The move in oil has put focus back on the Federal Reserve ahead of its policy meeting at the end of October; CME’s FedWatch tool showed the chances of a second successive interest rate hike at more than 65 percent.

Commentary

Stephen Innes at Quintex Intel wrote:

“Middle East tensions have flared again after President Donald Trump rejected Iran’s latest proposal to reopen the Strait of Hormuz. Oil has pushed higher, Asian equities are softer, and suddenly the brief Friday reprieve in global fixed income looks more like an intermission than the end of the show.”

He added that the market was still pricing some probability that discussions could resume despite ongoing public disagreement.

Key market figures (around 0715 GMT)

• West Texas Intermediate: UP 1.8 percent at $94.07 per barrel
• Brent North Sea Crude: UP 2.8 percent at $107.26 per barrel