Global markets remained under pressure as crude oil prices extended gains amid continued uncertainty over US-Iran negotiations and the future of the Strait of Hormuz. Higher oil prices have added to concerns over inflation, interest rates and economic growth, weighing on investor sentiment across markets.
Brent crude climbed above USD 106 per barrel on Tuesday, while US crude was trading near USD 94. Oil prices have risen sharply as investors remain uncertain about when the conflict in the Middle East will end and when normal oil flows through the Strait of Hormuz will resume.
Crude oil stays above $106
Brent crude was trading at around USD 106.78 per barrel, up 5.46 per cent over the past week. The price was also up 18.11 per cent over the month and 61.87 per cent over the year.
US crude was quoted at around USD 93.76 per barrel, with the contract gaining 9.47 per cent over the past month and 50.53 per cent over the year.
Oil prices had risen sharply on Monday after US President Donald Trump rejected an Iranian proposal linked to reopening the Strait of Hormuz. Brent had moved close to USD 109 during the session before giving up some gains.
Brent settled at USD 105.28 a barrel on Monday, up 96 cents, while US crude settled at USD 92.60, up 19 cents.
The rise in crude prices is coming despite the resumption of oil flows through Saudi Arabia’s East-West pipeline. Saudi Arabia has restored oil flows to around 3.5 million barrels per day following repairs to the key pipeline, which provides an alternative route around the Strait of Hormuz.
US-Iran talks keep oil markets nervous
Uncertainty over US-Iran negotiations remains one of the main factors driving crude prices.
Qatar is mediating between the United States and Iran and is working on a plan related to reopening the Strait of Hormuz. However, recent talks in New York made limited progress.
Iranian officials have reportedly raised doubts about reaching an agreement to end hostilities and reopen the strategic waterway before the US midterm elections in November.
Market expert Ajay Bagga said there were signs of flexibility from the US side, but an agreement had not yet been reached.
“An American official has said that Trump is ready to provide sanctions relief to Iran if it agrees to open the Strait of Hormuz and stop nuclear enrichment,” Bagga said.
He added that Iran later indicated that it was not ready to stop enrichment, keeping uncertainty around the negotiations.
According to Bagga, statements from both sides have resulted in movements in oil prices, with crude falling on reports of possible US sanctions relief before moving higher again.
Rising oil adds pressure on global markets
The increase in crude prices came as global stock markets faced pressure from higher oil prices and rising bond yields.
US stocks fell across the board on Monday. The Dow Jones Industrial Average declined 347 points and closed near its lowest level since mid-June. The S&P 500 fell 60 points to a 10-day low, while the Nasdaq Composite also closed near a 10-day low at around 26,820.
Higher crude prices have added to concerns about inflation at a time when investors are already expecting more interest-rate hikes from the US Federal Reserve in the coming months.
US Treasury yields also remained elevated. The 10-year Treasury yield closed near 4.25 per cent, while the 30-year yield rose for the fifth straight day and moved above 5.5 per cent.
The US dollar index gained for the second straight session and was trading close to 101.
Indian markets lose nearly Rs 7.5 lakh crore
Indian equities also came under heavy selling pressure on Monday as rising crude prices, weak global cues and selling ahead of the monthly expiry weighed on investor sentiment.
The Sensex fell 1,124.02 points, or 1.52 per cent, to 72,771.72. The Nifty declined 360.25 points, or 1.56 per cent, to 22,780.25.
The fall in equities resulted in a sharp decline in the market capitalisation of BSE-listed companies.
Market capitalisation fell to Rs 4,74,41,020.35 crore from Rs 4,81,88,998.45 crore on Friday. The decline of Rs 7,47,978.10 crore was equivalent to nearly Rs 7.5 lakh crore in a single session.
The pressure on Indian markets came as investors assessed the impact of higher energy prices along with weak global cues and the rise in bond yields.
Gold and metals also feel the pressure
The market sell-off was not limited to equities and crude oil. Gold prices also came under pressure, with Comex gold falling more than USD 100 to close at an eight-week low. It was the biggest single-day fall in gold since March 26.
Silver declined around 5-5.5 per cent to close near USD 61, marking its biggest one-day fall since September 10. It also fell to its lowest level since August 5.
Other industrial metals remained weak. Copper lost around USD 0.50 over the past two sessions, while aluminium declined more than 1 per cent to close near USD 3,250. Zinc also remained under pressure.
“There seems to be an effort from both sides to reach some agreement. The next important factor will be the follow-through,” Bagga said.
For crude oil, the next direction will depend largely on developments around US-Iran talks and the Strait of Hormuz. Bagga said official talks were continuing and there was hope that mediation could lead to a conclusion.
