Oil prices fall to two-month low on Iran peace deal hopes

Oil prices fell to their lowest levels in two months on Friday on the news of a possible breakthrough in talks between the US and Iran that could bring an end to the conflict in the Middle East.

Brent crude has dropped more than 4 percent during the week to about $89 a barrel, while US West Texas Intermediate fell to about $86.50, extending losses from the previous session after President Donald Trump said Washington and Tehran could sign a peace agreement as soon as this weekend.

The prospect of a deal helped calm markets that have spent much of the past three months reacting to military escalation, threats against energy infrastructure and the effective closure of the Strait of Hormuz, through which roughly a fifth of global oil and liquefied natural gas shipments normally pass.

Trump said on Thursday that negotiations had advanced to the highest levels of the Iranian leadership and that a settlement could be reached within days, reopening the strait to shipping.

“We just made a great settlement of the war with Iran,” Trump told reporters at the White House. “The strait will officially open as soon as we sign, which could be soon, very soon. Maybe over the weekend in Europe.”

However, Tehran offered a more cautious assessment. Iranian Foreign Ministry spokesperson Esmaeil Baghaei said large parts of the proposed agreement had been finalised but stressed that no final decision had been taken.

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“We have not reached a final conclusion on this matter,” he said, adding that the proposal remained under review by senior decision-making bodies.

Despite the continuing uncertainty, Asian equities rallied on Friday, with South Korea’s Kospi jumping more than 7 percent.

Wall Street recorded its strongest gains since April. Bond yields fell and investors scaled back expectations of further US interest rate increases as lower oil prices eased inflation concerns.

At the close on Thursday, Dubai’s benchmark index fell 0.4 percent, Abu Dhabi slipped 0.3 percent and Qatar’s main index also declined, although Saudi Arabia’s Tadawul closed 0.3 percent higher, supported by gains in oil giant Saudi Aramco.

Gold fell to a six-month low on Thursday before closing higher at $4,219.69.