Oil Plunges 5% and Dow Futures Surge 1.1% as Trump Signals Iran Peace Deal Is Near

Oil prices fell sharply and U.S. stock futures surged Monday after President Donald Trump said he would order U.S. forces to refrain from attacks against Iran and that a deal to end the fighting was near. Brent crude, the international benchmark, fell 4.9% to $83.66. U.S. crude dropped 5.8% to $79.81, according to Fortune. The move marked a dramatic reversal from weeks of escalation that had pushed oil toward $120 a barrel during the Strait of Hormuz conflict.

Futures for the Dow Jones Industrial Average climbed 1.1% ahead of Monday's opening bell. S&P 500 futures rose 0.6%, and Nasdaq futures added 0.3%. The Wall Street Journal reported that the shift toward diplomacy triggered a broad rally in risk assets as investors bet that reopening the critical oil shipping chokepoint would ease supply fears that had gripped global markets.

Interactive Brokers noted that crude oil surrendered roughly a third of its value since the Strait of Hormuz conflict pushed it toward $120 a barrel. West Texas Intermediate fell nearly 5% on Monday to about $80 a barrel, a two-month low. The move reflected growing confidence that the U.S. and Iran were inching toward an interim agreement that would reopen the strait, a narrow waterway through which roughly a fifth of global oil supply passes.

Investors Business Daily reported that Dow Jones futures rose solidly Monday night, while crude oil prices tumbled, as the U.S. and Iran appeared to be moving toward an interim deal. The report noted that the U.S. carried out "self-defense" strikes even as diplomatic progress was being made, underscoring the fragility of the situation. The speed of the reversal caught many traders off guard, given that just days earlier Brent crude had surged above $100 per barrel as the conflict escalated.

Despite the sharp drop in crude oil prices, American drivers have seen only a modest decline in gasoline prices. Interactive Brokers reported that crude oil surrendered roughly a third of its value since the conflict pushed it toward $120 a barrel, yet the price Americans pay at the pump barely dropped. This lag is typical in oil markets, where refiners and retailers tend to pass on price increases quickly but cut prices slowly when crude falls.

The gap between crude oil declines and pump prices has drawn scrutiny. If the peace deal holds and oil stays near $80 a barrel, consumers could see more meaningful relief at the pump in the coming weeks. But the stickiness of retail fuel prices serves as a reminder that geopolitical shocks in oil markets hit consumers faster on the way up than the way down.

source:Interactivebrokers

While U.S. futures rallied, Asian markets painted a more complicated picture. Japan's Nikkei 225 index lost 0.9% on Monday, and the U.S. dollar dipped against the yen, according to Fortune. The divergence reflects the uneven impact of Middle East tensions on different economies. Japan, which imports nearly all of its oil, remains acutely sensitive to supply disruptions even as diplomatic signals improve.

South Korea's Kospi index, which Fortune described as a bellwether for global stocks, soared 18% on Friday, marking its biggest single-day jump on record. That surge signaled that investors were back in buying mode after Trump balked at a major attack on Iran. The rally in Seoul, which preceded Monday's U.S. futures surge, suggested global markets were already pricing in de-escalation before Trump's formal announcement.

The Monday rally followed a pattern of extreme market volatility tied to Trump's statements on Iran. ABC News reported that on Wednesday, oil prices climbed and stocks tumbled after Trump said he believed an agreement with Iran was "over" amid an exchange of strikes in the Middle East. The S&P 500 ended down following that statement, according to Reuters. The seesaw between diplomacy and conflict has made oil markets uniquely reactive to presidential communications.

NBC News reported that oil prices plunged 15% and stock futures soared after Trump announced an Iran war ceasefire on social media, with U.S. crude falling to about $95 per barrel after trading as high as $117 earlier that week. The ceasefire was subject to what Trump called "the Islamic Republic of Iran agreeing to the COMPLETE, IMMEDIATE" cessation of hostilities. The repeated pattern of rally on peace signals, sell off on conflict escalation has become a defining feature of market behavior during the crisis.

The immediate question for markets is whether the interim deal will hold and the Strait of Hormuz will fully reopen. Investors Business Daily reported that an interim agreement would open the Strait of Hormuz, but key issues remain unresolved. The reopening of the Strait would be the single most important factor for oil prices, as it would restore the normal flow of roughly 20 million barrels per day of crude and petroleum products.

CNBC reported that during the height of the conflict, the Dow dropped 500 points and Brent crude surged above $100 per barrel, with Alphabet and Tesla shares tanking. The sensitivity of equity markets to oil prices reflects broader concerns that higher energy costs complicate the Federal Reserve's fight against inflation. Wells Fargo's Samana told CNBC that higher oil prices could complicate the Fed's inflation fight. A sustained drop in crude toward $80 would ease those concerns significantly, giving the Fed more room to maneuver on interest rates.