Oil prices jump after US-Iran talks collapse, erasing declines

The price of oil rose sharply on Monday, after Iranian government-aligned media reported that the country was cutting off talks with the United States to end the ongoing war.

U.S. crude oil soared as much as 8.5% to nearly $95 per barrel, an increase of almost $8. International Brent crude climbed as much as 7.3% to more than $97 per barrel, a $6 spike.

Heating oil, a proxy for jet fuel, also rose 7%, while wholesale gas prices rose 4%.

As a result of of the most recent decline in oil prices, the cost of retail gasoline was down $0.24 Monday from this year’s peak. Still, gas prices remain higher by 44% on average, than they were before the war.

Government bond yields, which heavily influence consumer borrowing rates, also jumped alongside energy prices.

The 10-year U.S. government Treasury yield rose from 4.4% to 4.51%. The 30-year Treasury yield increased from 4.97% to 5.02%.

Shorter term bonds, such as the two and five year Treasuries rose even more sharply.

Monday’s market moves essentially put oil prices back to levels from mid-May, before it saw two weeks of declines as administration officials continued to suggest that some kind of deal with Iran to end the war was within reach.

Now, as the war enters its fourth month, Tehran is reportedly suspending talks and “the exchange of texts through mediators” to protest Israel’s expanding offensive in Lebanon.

Iran also said it was “determined to consider the complete closure of the Strait of Hormuz and the activation of other fronts including the Bab el Mandeb Strait,” a critical commercial waterway off the coast of Yemen.

Investors on edge

“The (largely) closed Strait of Hormuz remains the focus for commodity market observers,” said HSBC strategists in a note on Monday morning.

“Commodity markets have, so far, absorbed the shock better than some of the worst-case scenarios, reflecting high inventories before the conflict and rapid shifts to redirect commodity trade,” they added.

“However, the longer the Strait of Hormuz remains closed, the more stocks will be run down and at some point they may reach critical functional lows, which could see sharper (non-linear) price rises and genuine shortages.”

For most of May, daily ship traffic through the Strait of Hormuz remained the single digits, according to data from S&P Global Market Intelligence.

U.S. stocks also fell slightly on Monday after the latest headlines about the Iran war, but their declines were cushioned by renewed momentum in AI stocks, following a series of product announcements from Nvidia overnight.

However, the Russell 2000 index, which tracks smaller companies and whose largest constituent is worth only $70 billion, fell 1% in morning trading.

The disparity between more mainstream indexes, such as the S&P 500 and Nasdaq Composite, and the Russell 2000 illustrates the bifurcation in markets between the indexes that are buoyed by large, AI-fueled companies and those that aren’t.

Internationally, stocks saw more significant widespread selling Monday, with benchmark indexes in France, the U.K. and Italy falling around 1%. The pan-European Stoxx 600 fell 1.1%.

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