Market Reaction to U.S. Threats on Iran
On Thursday, oil prices reversed earlier declines after President Donald Trump announced on his Truth Social platform that the United States would hit Iran "very hard tonight" and would eventually target the strategic Kharg Island in the Persian Gulf, a key terminal handling the majority of Iran’s crude oil exports. At 08:28 ET (12:28 GMT), August‑expiring Brent futures erased prior losses and were last quoted up 0.6 % at $93.72 per barrel, while U.S. West Texas Intermediate (WTI) futures turned positive, up 0.8 % at $90.76 per barrel. Both contracts had risen more than 2 % during early Asian trading, and oil prices had settled roughly 2 % higher in the preceding session.
Geopolitical Context and Recent Developments
The price surge followed a backdrop of mixed signals: earlier reports suggested that the United States and Iran were continuing peace‑talks despite a recent exchange of air attacks. CNN reported overnight negotiations on a potential peace deal, while Reuters cited a preliminary agreement that would include a mechanism to unfreeze Iranian funds, a development said to be intensifying according to Iranian sources. Nevertheless, President Trump warned that further action would be taken if Iran did not immediately accept a peace deal.
U.S. Central Command confirmed that the United States struck multiple Iranian military targets late Wednesday and early Thursday, describing the attacks as "self‑defence" after an American helicopter was downed near the Strait of Hormuz. Iran retaliated with strikes on several U.S. military bases and allied facilities across the Gulf, with explosions reported in Kuwait, Bahrain and Jordan. Iran also claimed to have blocked all ship traffic through the Strait of Hormuz—a claim CENTCOM denied—though the strait remains a critical global energy chokepoint.
Analysts at ING noted that even if Iran cannot officially block the strait, it can make vessel crossings more difficult, discouraging shipowners and suggesting that a settlement remains distant, keeping Persian Gulf energy flows constrained.
The latest hostilities occur amid a pattern of intermittent U.S.–Iran strikes over recent weeks and broader Middle‑East tensions, including Iranian engagements with Israel over Hezbollah‑related hostilities in Lebanon and an Israeli warning of projectile launches from Lebanon.
U.S. Energy Inventories and Inflation Data
U.S. Energy Information Administration data released on Wednesday showed crude oil inventories fell by 7.2 million barrels in the week ended 5 June, far surpassing analysts’ expectations of a roughly 3 million‑barrel draw. By contrast, gasoline stockpiles rose by 0.2 million barrels, and distillate inventories (diesel and heating oil) fell by 0.2 million barrels.
In the broader macro environment, U.S. consumer inflation accelerated to 4.2 % in May, heightening concerns that central banks may keep interest rates elevated for an extended period. Markets are awaiting upcoming U.S. producer‑price data and weekly jobless‑claims figures for additional clues on inflation trends and the likely trajectory of Federal Reserve policy.
Contributors: Ayushman Ojha and Scott Kanowsky