Just 24 hours after oil broke through the $100 mark, sentiment is shifting. WTI Crude fell more than 6% on Tuesday to around $95 per barrel. Brent dropped to about $97. The reason: hope for a second round of negotiations between the US and Iran.
What Happened
Peace talks between the US and Iran in Islamabad ended without agreement over the weekend after a 21-hour marathon session. President Trump subsequently announced a blockade of the Strait of Hormuz. On Monday, oil surged above $104 — the highest level since the conflict began.
Then the reversal: Trump stated that Iran had reached out and wanted to negotiate. Pakistan is working to organize a second round of talks according to CBS News. Britain and France are planning a summit in Paris on Friday to address reopening the Strait of Hormuz.
Why Markets Reacted So Quickly
The oil market is currently a pure sentiment play. Fundamental data — OPEC+ production down 7.9 million barrels per day since the Strait closed, Saudi Arabia activating its pipeline to the Red Sea — take a back seat. What matters is one question: Will there be a deal or not?
The International Energy Agency (IEA) warned on Tuesday that “demand destruction will spread” if scarcity and high prices persist. At $100+ oil, airlines start cutting flights, shippers pass on costs, and consumers begin restricting spending.
Producer Prices: Inflation Returns — Or Does It?
US producer prices (PPI) released Tuesday show a split picture. Headline inflation rose 0.5% — driven by a massive 8.5% energy price surge. But core PPI rose just 0.1%, well below the expected 0.5%.
The message: Inflation is an oil price problem, not a broad economic problem. If oil falls, inflation falls. Another reason markets are desperately hoping for an Iran deal.
What Investors Should Do Now
The S&P 500 on Monday essentially erased all losses since the start of the Iran conflict. The Nasdaq is heading for its tenth consecutive winning day — the longest streak since 2021. The market is already pricing in a deal.
This is dangerous. If negotiations break down again, a sharp pullback is likely. Investors should take partial profits and maintain energy positions (Chevron, ExxonMobil) as a hedge. The next 72 hours will be critical. Monitor the Fear & Greed Index for live sentiment data.
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