Brent: Why are US-Iran talks weighing on prices? – MUFG

Oil prices are finding support for further declines as investors grow more optimistic about a possible US-Iran deal amid stepped-up diplomacy across the Middle East. MUFG’s Lee Hardman points to a steep repricing in energy markets, with Brent having fallen about 16% and continuing to weaken. Sustaining lower energy prices and containing upward pressure on the US Dollar will require further headway in the talks, MUFG cautions.

Can diplomacy sustain the decline in energy prices?

"The other main development last week was the sharp adjustment lower for energy prices. The price of Brent fell by around 16% and has continued to weaken further at the start of this week. Lower energy prices have been encouraged by renewed investor optimism over the potential for a US-Iran deal."

"Investor optimism has been encouraged further over the weekend by comments from President Trump who told CNN that it is “highly unlikely” he will need to order fresh military strikes on Iran if talks show progress. He noted that “it depends on whether or not they sign a very strong agreement."

"However, US Secretary of State Macro Rubio sounded more cautious saying that “I wouldn’t say we’re on the verge of a breakthrough”. Further progress in talks will be required to sustain lower energy prices and help to ease upward pressure on the US dollar from a more protected energy price shock."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)