Oil markets volatile amid conflict fears, diplomacy hopes

Washington: Oil markets swung sharply as investors weighed fears of a prolonged Middle East conflict against signs of possible diplomatic progress, with prices briefly topping $100 before retreating.

Wall Street struggled for direction. Crude rose, bonds sold off, and stocks fell as conflicting signals emerged from Washington and the region, according to reporting by The Wall Street Journal.

Front-month Brent crude climbed 4.6 per cent to $104.49 a barrel, while West Texas Intermediate rose 4.8 per cent to $92.35, the Journal reported.

The gains came after reports that the Pentagon was deploying a combat brigade to the Middle East, even as President Donald Trump signalled that peace talks with Iran were progressing.

Investors were left searching for direction as markets reacted to both escalation risks and diplomatic signals.

Analysts warned that sustained high oil prices could act as a drag on growth. “The longer oil stays higher, it’s almost like an automatic governor on the economy,” said David Lundgren, a portfolio manager and chief market strategist at Little Harbor Advisors.

The volatility extended across asset classes. The Nasdaq fell 0.8 per cent, the S&P 500 dipped 0.4 per cent, and the Dow Jones Industrial Average slipped slightly, while Treasury yields climbed.

Market participants also flagged the risk of a broader economic shock. An oil-price surge “is going to be a stagflationary shock to the economy,” said Qian Wang of Vanguard.

At the same time, traders bet that prices could rise further. Wagers on Brent reaching $110 a barrel were among the most popular positions, reflecting expectations that supply disruptions could persist.

Yet sentiment shifted later in the day as signs of diplomacy emerged. Oil prices fell in early trade on “signs of progress in a resolution to the Middle East conflict,” with analysts pointing to “pledges for peace in the region continue with the aid of Pakistan, Qatar and others,” according to The Wall Street Journal.

Trump also insisted his administration was in talks with Iran and referred to an oil- and gas-related “present” from Tehran, the Journal reported.

Despite these signals, economists cautioned that any relief in energy prices would be slow. “Prices rise like a rocket, fall like a feather,” said Mark Zandi, chief economist at Moody’s Analytics, as reported by The New York Times.

Even if the conflict ends quickly, it could take “six to eight weeks for oil production and shipments to normalize,” analysts told the Times, with prices likely to settle above pre-war levels.

Industry executives echoed the uncertainty. “We don’t have any idea where the price is going to go,” said Mike Sommers of the American Petroleum Institute, according to the Times.

There are also structural constraints. Gasoline prices remain elevated near $4 a gallon, and a drop in crude would take time to filter through refining and distribution systems, according to a CNN analysis.

Markets remain highly sensitive to developments around the Strait of Hormuz, a critical chokepoint for global oil flows. Disruptions there have amplified price swings and heightened geopolitical risk.

IANS