(RTTNews) – The geopolitical risk premium that arose due to a potential U.S.-Iran confrontation diminished following U.S. President Donald Trump’s sudden softening of his stance yesterday, and consequently, crude oil prices plunged on Thursday.
WTI Crude Oil for February delivery was last seen trading down by $2.83 (or 4.56%) at $59.19 per barrel.
In Iran, a civil uprising began in December against the government’s inability to control prices or arrest the fall of Iranian Rial.
As the insurrection spread to other cities, authorities clamped down on the protestors, leading to violent clashes that resulted in the loss of hundreds of lives. Several demonstrators are behind bars with some executed and many facing capital punishment.
An internet cut-off led to a “black-out” of the true picture. Supported by Starlink, protestors highlighted how rulers punished protestors by hanging.
Angered President Trump warned Iran that the U.S. would intervene to contain the situation. However, Iran brushed aside Trump’s threat and cautioned its neighbors not to harbor U.S. forces and threatened to attack them if the U.S. conducts airstrikes on Iran.
Iran is one of the largest producers in the OPEC alliance. In addition, it controls the Strait of Hormuz, a strategic chokepoint for oil flows which, if attacked, could rupture the main artery of oil transport.
The escalation increased oil output-and-supply related concerns and the looming threat of war pushed up oil prices.
Yesterday, Trump stated that he had been informed by “very important sources” that the “killing has stopped” in Iran and would like to watch how the situation unfolds for now.
Trump’s pullback brought down oil prices as the geopolitical risk premium decreased.
The Russia-Ukraine war has entered a crucial phase, with Trump accusing Ukraine’s President Volodymyr Zelenskyy of blocking a potential peace deal with Russia. Strengthened by assurances from allies in the European Union, Ukraine has refused to concede any territory to Russia.
Russia has stepped up its attacks on the battlefield to increase pressure on Ukraine.
A deal could end the war and let Russian oil flow into the market, while a standoff could push the war to a more dangerous stage.
In the Caribbean, the U.S. has reportedly captured another Venezuela-linked oil tanker (named Veronica). This is the sixth tanker intercepted by the U.S. since December when the U.S. commenced targeting Venezuela-linked vessels carrying “sanctioned oil.”
Since the capture of Venezuela’s President Nicolas Maduro earlier this month by U.S. forces, Trump is focusing on utilizing the rich oil reserves of Venezuela. Under Trump’s motivation, oil majors are contemplating investing billions of dollars in Venezuela to resurrect the oil business.
The interim regime has agreed to provide the U.S. with $5 billion worth of crude oil.
In the U.S. today, in an interview with CNBC, Chicago Federal Reserve President Austan Goolsbee stated that there is strength in the job market and the central bank should focus on bringing inflation down to the 2% range. Goolsbee added that when inflation is back to the targeted range, rates can go down.
Recent payrolls data revealed a reduction in the unemployment rate for December. This “low-hire, low-fire” scenario has lowered rate cut expectations.
Separately, earlier this week, the U.S. Department of Justice opened up a criminal investigation on Fed Chair Jerome Powell related to alleged financial misdeeds in the renovation of the Fed building.
Yesterday, the U.S. Supreme Court postponed its ruling on the legal validity of Trump’s powers to levy tariffs.
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