Brent crude falls below $80 on US-Iran peace deal

Today’s headlines

What’s happening: Crude oil prices traded lower this morning after the US and Iran digitally signed their interim peace deal.

What happened: The agreement leading to the eventual reopening of the Strait of Hormuz sent oil prices toward their weakest level since March.

Some strength in the US dollar also weighed on crude oil prices this morning.

Why it matters: The MOU (memorandum of understanding) signed by the US and Iran will start a 60-day negotiation period during which Tehran will allow shipments to transit through the Strait of Hormuz without any toll. According to the agreement, the traffic through the Strait of Hormuz should be reinstated to its full capacity within 30 days.

IEA (International Energy Agency) experts warned that this year’s crude supply crisis could ⁠turn into a supply glut next year, in case the US-Iran deal holds and the Strait of Hormuz is successfully reopened. They projected global oil supply surging by 8 million bpd (barrels per day) by 2027, versus demand growth of only 2 million bpd.

The US Federal Reserve kept its benchmark interest rates unchanged at its policy meeting on Wednesday. Policymakers also contemplated the need to hike rates this year to combat ⁠inflation, as rate hikes weigh on economic growth. Only nine of the Fed’s 19 policymakers said a rate hike would be required.

Data released on Wednesday showed that US crude oil inventories contracted by 8.262 million barrels in the week ended June 12, the most since February. The figure was much higher than market estimates of a drawdown of 4.6 million barrels. Gasoline stockpiles also declined by 0.906 million barrels to 214.2 million barrels, versus market expectations of a 1-million-barrel draw.

Strength in the US dollar exerted further pressure on crude oil prices as a higher greenback makes commodities more expensive for foreign currency holders. The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained 0.2% to 100.27 this morning.

Spot price for WTI crude oil fell 0.5% to $76.06 per barrel, while spot price for Brent crude oil declined over 0.5% to $79.63 per barrel this morning.

In other energy trading, gasoline slipped 0.5% to $2.8940, while heating oil dipped 1.5% to $3.0982. Natural gas bucked the market trend, adding 0.8% to reach $3.171 this morning.

What to watch: Investors will continue monitoring the removal of blockades imposed by the US and Iran’s efforts to reopen the Strait of Hormuz.

The EIA’s (Energy Information Administration) data on natural gas stockpile change (1830 UAE Time) will be released today. Working gas held in storage facilities in the US rose by 108 billion cubic feet during the week ended June 5.

The markets today

The New Zealand dollar in focus today ahead of trade balance data

Context: The NZD/USD forex pair gained this morning as investors digested the latest GDP data.

Details: Data released this morning showed that New Zealand’s economy expanded by 0.8% in the first quarter, accelerating from 0.5% growth in the previous quarter. The figure, however, missed the Reserve Bank of New Zealand’s 1.0% projection.

Annual GDP grew 1.5% in the three months to March, topping market estimates of 1.1% growth. Although the reading signalled a rebound in the economy, it reflected conditions before the escalation of the US-Iran conflict.

The latest projections now indicate that New Zealand’s economy may barely expand or even contract in the second quarter.

Meanwhile, investors widely expect the central bank to hike its benchmark interest rate by 25 basis points (bps) in July.

Strength in the US dollar weighed on the New Zealand dollar this morning. The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained around 0.2% to 100.27.

The NZD/USD pair rose around 0.2% to 0.5795 this morning, while the S&P/NZX 50 Index fell 0.26% to 13,357.69.

What to watch: Investors will continue monitoring developments related to the US-Iran peace deal.

Data on balance of trade (0245 UAE Time) will be released on Friday. New Zealand’s trade surplus, which rose to NZ$1.92 billion in April from NZ$1.20 billion in the year-ago month, is expected to shrink to NZ$0.6 billion in May. New Zealand’s exports, which jumped 12% year-over-year to a record high of NZ$8.6 billion in April, are expected to contract to NZ$8.1 billion in May. Imports are projected to rise to NZ$7.5 billion in May from NZ$6.7 billion in the previous month.

Other Markets: US trading indices closed lower on Wednesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.98%, 1.21% and 0.99%, respectively.

The news shaping the markets

Leaders of the G7 pledged to boost Ukraine’s air defences and tighten sanctions on Russia. The news sent the USD/RUB pair higher in forex trading this morning.

Canada’s new housing prices dipped 0.3% in May, compared to a 0.4% decline in April. The latest reading coming below market expectations of a 0.1% decline lent support to the USD/CAD forex pair.

The Hong Kong Monetary Authority kept its base rate unchanged at 4.0% at its recent meeting, which sent the USD/HKD pair higher in forex trading this morning.

Brazil’s IBC-Br economic activity index climbed 0.5% in April, following a 0.7% fall in March. The latest reading missing market estimates of 0.6% lent support to the USD/BRL forex pair.

Colombia’s consumer confidence index increased 4.1 percentage points to 17.8% in May versus April. However, the USD/COP pair rose in forex trading this morning.

What else to watch today

Eurozone’s current account (1200 UAE Time) and construction output (1300 UAE Time), Italy’s current account (1200 UAE Time), South Africa’s building permits (1500 UAE Time), Turkey’s MPC meeting summary (1500 UAE Time) and foreign exchange reserves (1530 UAE Time), Bank of England’s interest rate decision (1500 UAE Time), Mexico’s aggregate demand (1600 UAE Time) and private spending (1600 UAE Time), Canada’s PPI (1630 UAE Time), raw materials prices (1630 UAE Time), US initial jobless claims (1630 UAE Time), Philadelphia Fed manufacturing index (1630 UAE Time), continuing jobless claims (1630 UAE Time), CB leading index (1800 UAE Time), Baker Hughes oil rig count (2100 UAE Time) and Baker Hughes total rigs count (2100 UAE Time) as well as Argentina’s consumer confidence (1900 UAE Time) and balance of trade (2300 UAE Time).