Oil prices drop after Iran says Strait of Hormuz ‘completely open’ for passage of ships
Oil prices dropped back to where they were in the early days of the Iran war, and US stocks raced to another record Friday after Iran said the Strait of Hormuz is open again for commercial tankers carrying crude from the Persian Gulf to customers worldwide.
The S&P 500 leaped 1.2 per cent to an all-time high and closed out a third straight week of big gains, its longest streak since Halloween. A freer flow of oil could take pressure off prices not only for gasoline but also for groceries and all kinds of other products that get moved by vehicles. It could even ultimately help people pay less on credit-card interest and mortgage bills.
The Dow Jones Industrial Average surged as many as 1,100 points before paring its gain to 868, or 1.8 per cent. The Nasdaq composite climbed 1.5 per cent.
The US stock market has jumped more than 12 per cent since hitting a bottom in late March on hopes the United States and Iran can avoid a worst-case scenario for the global economy despite their war. Friday’s reopening of the Strait of Hormuz, which may only be temporary, is the clearest signal yet for optimism, and president Donald Trump said late Thursday that the war “should be ending pretty soon”.
The price for a barrel of benchmark US crude plunged immediately after Iran’s foreign minister, Abbas Araghchi, posted on X that passage for all commercial vessels through the strait “is declared completely open” as a ceasefire appears to be holding in Lebanon. He said it would stay open for the remaining period of the ceasefire, and the price for U.S. oil dropped 9.4 per cent to settle at $82.59 per barrel.
Brent crude, the international standard, fell 9.1 per cent to settle at $90.38 per barrel. To be sure, it remains above its $70 price from before the war, indicating some caution is still embedded in financial markets.
US stocks are heading toward the end of a third straight week of big gains.
Several times since the war began, optimism on Wall Street has quickly deteriorated into doubt about a possible end to the fighting. That in turn has caused vicious and sudden swings of prices for everything from stocks to bonds to oil.
Minutes after the Iranian foreign minister’s announcement of the Strait of Hormuz’s reopening, Mr Trump said on his social media network that the US navy’s blockade of Iranian ports remains “in full force” until both sides reach a deal on the war. He, though, also suggested that “should go very quickly in that most of the points are already negotiated” and emphasized it by using all capital letters.
Companies with big fuel bills soared to some of Wall Street’s biggest gains following the easing of oil prices.
United Airlines flew 7.1 per cent higher, and Southwest Airlines climbed 5.1 per cent. A day earlier, the head of the International Energy Agency had said that Europe has “maybe six weeks or so” of remaining jet fuel supplies.
Operators of cruise ships, which guzzle fuel, also steamed higher. Royal Caribbean Group gained 7.3 per cent and Carnival rose 7 per cent.
Housing and auto-related companies likewise got some relief from the drop in oil prices.
With less threat of high inflation hurting the economy, a sustained drop in oil prices could convince the Federal Reserve to resume its cuts to interest rates to help the economy. The yield on the 10-year Treasury sank to 4.24 per cent from 4.32 per cent late Thursday, and lower yields can bring down rates for mortgages and other loans going to U.S. households and businesses.
