- Oil prices have been volatile all week as renewed talks of a US-Iran peace deal heat up.
- Meanwhile, investors are also bracing for the next Fed meeting which has sparked more uncertainty.
- Falling oil prices should decrease inflation expectations, it won't influence the Fed decision.
Oil market volatility continued on Tuesday, as prices plunged for a second day this week as a pause in the fighting held and hopes increased for the US and Iran to renew talks to end the war.
Brent and US crude prices tumbled on Tuesday, extending Monday's decline. Brent is down nearly 16% in the two days, trading around $83 a barrel. West Texas Intermediate crude fell below $80 on Tuesday, dropping about 12% in two days.
Talk of renewed peace deal between the US and Iran has helped push oil prices back down after Brent jumped above $100 for the first time since May earlier this month. President Donald Trump continues to tease talks with Iran while also maintaining that attacks could resume if there isn't a deal soon.
A pause in the fighting announced over the weekend appeared to hold into this week, and talks between Iran, Saudi Arabia, and Oman about how getting the Strait of Hormuz reopened helped push crude prices down further.
"There's definitely still a lot of volatility in the oil markets," stated Morningstar chief market strategist Dave Sekera. "We've seen this exact same setup multiple times over the past couple months. Essentially, during the week, there's military action and retaliation, but then it always seems that Sunday evening, before futures open, there are headlines out there that each side has agreed to de-escalation."
The volatility in oil comes at a critical time as investors prepare for the Federal Reserve's July 29 rate decision. Between the question about the central bank's new chairman and several high stakes earnings reports, uncertainty is running high for markets.
Lower oil prices are an important input for inflation, as much of the price pressure the Fed is looking at as it deliberates this week is being induced by the war. While the Fed can't control supply side issues, hawkish observers argue that a rate hike could give officials room to maneuver and get ahead of other inflationary pressures.
Combined with earnings from Meta and Microsoft, Rick Gardner, chief investment officer of RGA Investments, said that Wednesday will be a hugely important day for markets.
"While oil prices are sensitive to Iran headlines, it's clear that the stock market is no longer moving in lockstep with oil prices, which is an extremely welcome sign, and an indication that stocks are more focused on earnings, which have been strong so far this season," he said.
The post Oil prices are cratering on renewed optimism for a US-Iran peace deal appeared first on Business Insider
