Oil prices climbed on Friday as stalled US-Iran talks heightened concerns about disruptions to global crude supplies, putting oil and gas prices on course for strong weekly gains amid continued uncertainty over the conflict. The United States threatened to step up economic pressure on Iran, including by extending a naval blockade, as negotiations showed little progress towards a deal to end the conflict. The heightened geopolitical tensions supported oil prices even as US and European shares fell after economic data further weakened expectations of a Federal Reserve rate hike next month.
US consumer sentiment deteriorated in early August amid the rising cost of living because of the Middle East conflict, a survey showed on Friday. The US dollar and yields on US Treasuries fell on a surprise drop in US retail sales. The data further reduced expectations of a Federal Reserve rate hike at next month's meeting. The weaker dollar supported gold prices. Tech stocks, which had propelled the S&P 500 to a record high on Thursday, weighed on Wall Street. The Dow Jones Industrial Average fell 73.41 points, or 0.14%, to 53,766.58, the S&P 500 fell 14.93 points, or 0.19%, to 7,784.06, and the Nasdaq Composite fell 105.11 points, or 0.39%, to 26,697.93.
"There is some profit taking, but I expect that most institutional investors remain fairly optimistic," said Peter Andersen, founder of Andersen Capital Management. Both the S&P 500 and the Nasdaq were still on track for their third consecutive weekly gain. European shares finished lower on Friday and snapped a four-week winning streak, as rising crude prices and renewed geopolitical tensions offset support from a resilient earnings season.
Brent crude futures rose to $88.33 per barrel, up 1.45% on the day, and US oil prices rose 1.26% to $82.27. John Sidawi, senior portfolio manager for fixed income at Federated Hermes, said a puzzling feature of markets in recent months has been the growing disconnect between geopolitical uncertainty and asset price volatility. "For now, markets appear willing to tolerate a significant amount of uncertainty without demanding higher risk premiums. However, this equilibrium is unlikely to be permanent," Sidawi said. "A meaningful escalation in conflict or a clear path toward resolution could finally force investors off the sidelines, potentially triggering a much larger volatility response than current market pricing implies."