Oil prices have dropped and stocks have risen following the US-Iran agreement to reopen the Strait of Hormuz. The US oil benchmark, WTI, settled at $76.60 a barrel on Thursday, down almost 10% for the week. Gas prices have also eased, dipping below $4 a gallon for the first time since March.
Market Reaction
Traders are relieved that the strait has reopened, but some worry that the rally in stocks and drop in oil prices might be overdone. David Oxley, chief commodities and climate economist at Capital Economics, said, “Traders are kind of pricing in perfection… It’s not necessarily a sign that everything is going to be completely smooth ahead.”
The agreement outlines a 60-day ceasefire period, and the strait could potentially close again after that. Questions remain about mines in the strait and the cost of insuring ships. Adam Turnquist, chief technical strategist at LPL Financial, said, “I do see pretty substantial risk that this doesn’t play out as optimistic as maybe some are pricing into the market.”
Economic Impact
The drop in oil prices is a tailwind for stocks, but the conflict in the Middle East remains a risk. The S&P 500 is up 9% since the war with Iran started in late February. US stocks continue to rise on enthusiasm about artificial intelligence, but the Federal Reserve’s decision to hold interest rates steady has led to a decrease in stocks.
Original reporting: El Paso News (HLL/CB) — read the source article.
