WTI crude surges 3% past $90 on fading Iran deal hopes

West Texas Intermediate crude oil surged over 3 percent to $90.07 a barrel as traders priced in a lower probability of a US-Iran peace deal before a looming ceasefire deadline, reversing earlier losses.

"Investors are back in ‘wait and see’ mode ahead of possible US-Iran peace negotiations in Pakistan,” said David Morrison, senior market analyst at Trade Nation. "Brent has rarely strayed outside of $90-$92, while WTI has mostly kept within the borders of $86-$88 per barrel."

The move pushed May WTI futures decisively above that recent range. Brent crude, the global benchmark, was last down about 1 percent at $94.53, a volatile session after it jumped 5.6 percent Monday. The CBOE Volatility Index (VIX), a proxy for market risk, has fallen sharply from its recent peak near 31 but remains sensitive to geopolitical headlines.

The price spike threatens to unwind the recent "risk-on" rally, particularly in small-cap stocks that are highly sensitive to energy costs and interest rate expectations. With about one-fifth of the world's oil supply passing through the Strait of Hormuz, a failure to secure a deal could lead to a protracted supply disruption, with analysts at Citi warning of a potential move toward $110 per barrel if talks fail.

Ceasefire Deadline Looms

The market's anxiety is centered on the approaching deadline for the current US-Iran ceasefire, which expires Wednesday evening. Hopes for an extension or a broader agreement have dimmed after US President Donald Trump told Bloomberg it was “highly unlikely” he would extend the truce without a deal. The diplomatic process was further complicated after Iran’s parliament speaker, Mohammad Baqer Qalibaf, reiterated that Tehran would not engage in talks “under threats.” Iran has not yet formally committed to attending a second round of talks in Pakistan, citing the US seizure of an Iranian cargo vessel as a key obstacle.

Ripple Effects Across Markets

The surge in oil acts as a direct headwind for the broader market by stoking inflation fears, which could force central banks to maintain a hawkish stance on interest rates. The recent rally in the Russell 2000 small-cap index, which had reached a new all-time high, was fueled in part by retreating oil prices. That trend is now at risk, as an estimated 41% to 46% of Russell 2000 companies cannot cover their interest expenses with operating profits and are particularly vulnerable to higher energy input costs. The dynamic is also impacting other commodities, with gold prices falling as a stronger dollar and the prospect of sustained high interest rates diminish the appeal of the non-yielding metal.

This article is for informational purposes only and does not constitute investment advice.