Oil Prices Drop by 7 Percent as Market’s Iran Fear Factor Fades

U.S. stocks also climb following Tehran’s restrained retaliation.

A maze of crude oil pipes and valves is pictured during a tour by the Department of Energy at the Strategic Petroleum Reserve in Freeport, Texas, on June 9, 2016. Richard Carson/Reuters

Crude oil prices plummeted by more than 7 percent on June 23 as investors were optimistic that Iran’s limited retaliation could lead to a de-escalation in the Middle East.

West Texas Intermediate (WTI), a U.S. benchmark for oil prices, cratered by about 7.3 percent to below $69 per barrel on the New York Mercantile Exchange. Brent, a global gauge for crude prices, also dipped by nearly 7 percent to below $71 per barrel on London’s ICE Futures exchange.

Oil prices are now trading at where they were before Israel’s June 13 strikes on Iran.

The price of natural gas also decreased by 4 percent, to $3.70 per million British thermal units.

Despite surging as much as 5 percent in overnight trading, oil prices fell sharply as the session progressed, driven by investors shrugging off concerns that Tehran could disrupt supplies.

In response to the U.S. attacks on three nuclear sites, Iran launched a missile strike on the Al-Udeid Air Base in Qatar. Local officials confirmed that Iran’s attacks did not lead to casualties.

Earlier in the day, U.S. President Donald Trump urged everyone to “keep oil prices down.”

“I’m watching you! You’re playing right into the hands of the enemy. Don’t do it!” he wrote in all-caps on Truth Social.

When a conflict forms, markets will typically have a “knee-jerk reaction,” Jay Woods, chief global strategist at Freedom Capital Markets, said in a note emailed to The Epoch Times.

“The President declared that this attack was strategic and aimed solely at the Iranian nuclear facility. He said now was the time for peace, but will Iran negotiate, or was this an overly ambitious goal of diplomacy coming from the U.S.?” Woods said.

Dow Jones Soars by 300 Points

U.S. stocks turned positive, with the leading benchmark averages climbing higher as the closing bell approached.

The blue-chip Dow Jones Industrial Average surged by about 300 points, or 0.7 percent. The broader S&P 500 advanced by close to 0.8 percent, while the tech-heavy Nasdaq Composite Index increased by around 0.8 percent.

Yields on Treasury securities were red across the board. The benchmark 10-year yield shed four basis points to below 4.4 percent. The two-year yield declined by more than six basis points to 3.84 percent, and the 30-year yield dipped by two basis points to under 4.87 percent.

Equities also added to their momentum on greater prospects of a July interest rate cut by the Federal Reserve.

Michelle Bowman, vice chair for Supervision of the Board of Governors of the Federal Reserve System, revealed in a June 23 speech that she would support a rate cut at the July policy meeting.

“Should inflation pressures remain contained, I would support lowering the policy rate as soon as our next meeting in order to bring it closer to its neutral setting and to sustain a healthy labor market,” she said in prepared remarks at an event in Prague.

“In the meantime, I will continue to carefully monitor economic conditions as the Administration’s policies, the economy, and financial markets continue to evolve.”

Federal Reserve Govs. Michelle Bowman and Christopher Waller pose for a photo during a break at a conference on monetary policy at Stanford University's Hoover Institution, in Palo Alto, Calif., on May 6, 2022. Ann Saphir/Reuters

This echoed the sentiment of her colleague, Fed Gov. Christopher Waller. He said in a June 20 interview with CNBC’s “Squawk Box” that the central bank could lower the key policy rate “as early as July.”

At this month’s June Federal Open Market Committee policy meeting, monetary policymakers left the benchmark federal funds rate unchanged for the fourth consecutive meeting, maintaining a target range of 4.25 percent to 4.5 percent.

The futures market is still penciling in a September rate cut, although the odds of a July move have risen since Waller’s remarks.

Reading the Market Tea Leaves

Although Wall Street remains optimistic about a potential easing of tensions in the Middle East, financial markets continue to navigate considerable uncertainty, according to Siebert Financial Chief Investment Officer Mark Malek.

“The question remains, what will happen in the Strait of Hormuz?” Malek said in a note emailed to The Epoch Times.

The White House, in response to reports that Iran’s parliament approved closing the narrow waterway between Iran and Oman, said shutting down the strait would be “foolish.”

“Now, to be clear, fear and slowdowns will hamper movements and likely come at a cost, albeit not a severe one,” Malek said. “Further, any attempts to completely choke off the strait will likely be short-lived.”

According to the U.S. Energy Information Administration, the Strait of Hormuz is a “critical chokepoint” that handles approximately 20 million barrels of oil per day and accounts for one-third of global liquefied natural gas. A majority of the oil flows are destined for Asia, primarily China, Japan, India, and South Korea.

The strait is the “wildcard risk” for global markets, Malek said, and investors were pricing in the risk of escalation. At the same time, U.S. missile strikes on Iran over the weekend were “making an unknown known,” he said.

“Markets hate unknowns,” he said. “Is the threat of an Iranian response a new unknown? If it includes the Strait of Hormuz ... well, if you have been paying attention, really, no.”

The latest performance signals that the market remains resilient, and traders are buying the dip at any opportunity, Woods said.

“Will this cause a minor short-lived wave or a major wave that has ripple effects that last months?” he asked.

On the data front, markets will digest a new inflation report.

The May personal consumption expenditures (PCE) price index, the Fed’s preferred inflation metric, will be released on June 27. According to the Cleveland Fed’s Inflation Nowcasting model, the PCE is anticipated to rise to 2.3 percent from 2.1 percent. Core PCE, which excludes the volatile energy and food categories, is expected to rise to 2.6 percent from 2.5 percent.

Traders will also monitor the final first-quarter gross domestic product estimate, the goods trade balance, and personal income and spending.