Oil prices dropped again on May 7, slipping by more than 4 percent to take the Brent crude benchmark below $100 per barrel on renewed hopes that a peace deal between the United States and Iran is on the horizon.
Brent crude futures fell by $4.31, or to $96.96 a barrel, during trading on May 7, during an unsettled session during which there were fluctuations of up to 4.6 percent from close on May 6.
The continued fall comes after the price dropped to two-week lows on May 6 amid speculation that Washington and Tehran were nearing an initial peace deal.
The cost of Brent crude fell by 11 percent to less than $98 per barrel in May 6 trading as President Donald Trump said he was pausing efforts to guide stranded ships out of the strait to finalize a deal with Iran on ending the conflict; however, prices remain well above the pre-war level of about $70 a barrel.
The price drop comes after it hit a four-year high of more than $126 per barrel on April 30.
“A confirmed deal probably takes Brent back into the $80-90s quickly,” SEB Research analyst Ole Hvalbye said in a note. “A breakdown in talks or a Trump pivot back to strikes lands us immediately north of $120 a barrel.”
Trump, at a May 6 White House event, told reporters that administration officials are engaged with Iranian negotiators who want to reach an agreement and that any final deal must meet U.S. requirements.
“We’re dealing with people that want to make a deal very much, and we’ll see whether or not they can make a deal that’s satisfactory to us,” he said, saying that they “want to negotiate.”
During a phone conversation with French President Emmanuel Macron, Iranian President Masoud Pezeshkian said Tehran is ready to engage in diplomacy with the United States, according to Iranian state-run PressTV on May 6.
“[The country] is ready to seriously pursue diplomatic paths to end the war, while emphasizing the realization of the rights of the Iranian nation,” Pezeshkian said, according to the report.
High Energy Costs Likely to Persist
The drop in oil prices comes as shipping giant Maersk warned on May 7 that the war had raised its fuel costs by nearly $500 million a month and that the energy crisis would persist even if a peace deal were reached.
While freight volumes have held up, the soaring energy costs are eating into margins, and Maersk shares are down 7 percent, Reuters reports.
The Danish company’s CEO, Vincent Clerc, said the longer the war drags on, the greater the risk that inflation kills the consumer demand that has kept shipping afloat.
He said the war and ensuing closure of the Strait of Hormuz had added roughly 3 billion Danish crowns ($472.7 million) to the company’s monthly costs as bunker fuel prices surged from about $600 to a little less than $1,000 per metric ton.
So far, Maersk has recovered those costs by passing them on to customers in full through contract renegotiations and spot-rate increases. But Clerc cautioned that the energy crisis showed no sign of fading.
“The energy crisis does not go away the day peace comes,” he said at a press conference. “Oil companies I speak to … expect it to last at minimum several more months, possibly many more months.”
Clerc’s comments echo similar warnings from S&P Global Energy and Chevron that energy prices are likely to remain elevated for some time, even after a peace agreement is reached.
S&P Global Energy said on May 6 that the immediate reopening of the Strait of Hormuz would not be a quick fix at this stage. The commodities giant said that if the waterway were to reopen, it would take an additional seven months at minimum to fully restore upstream production, assuming that there is no permanent damage and that supply chains operate smoothly.
Chevron CEO Michael Wirth, meanwhile, said on May 4 that physical shortages in oil supply would begin to appear around the world because of the closure of the strait.
“Demand needs to move to meet supply,” Wirth said during a discussion sponsored by the Milken Institute. “Economies are going to have to slow.”
Markets Respond
On Wall Street, the S&P 500 added 0.1 percent to its all-time high set the day before, while the Dow Jones Industrial Average was down 176 points, or 0.4 percent, as of 10:30 a.m. ET, and the Nasdaq composite was adding 0.5 percent to its own record, The Associated Press reports.
Around the world, indexes fell in Europe following a stronger finish in Asia.
Japan’s Nikkei 225 rose 5.6 percent as trading in Tokyo reopened following a holiday and caught up with big gains for Asian markets from earlier in the week. It’s at a record after rocketing nearly 71 percent in the last 12 months, largely on the strength of tech stocks benefiting from the artificial intelligence boom.
Europe’s STOXX 600 was down 0.86 percent with less than an hour of trading left, having jumped 2.2 percent on May 6.
Reuters and The Associated Press contributed to this report.
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