The energy sector continued its steady free-fall in the last week. WTI crude prices slid sharply on Tuesday. It fell 5.8% to close at $76.05. Brent crude fell by 4.8% to close at $79.17.
For weeks, oil prices indicated a downtrend. Every rally since February closed at lower highs. This descending pattern led to a capitulation between Monday and Tuesday. Shares of Exxon Mobil (XOM), Chevron (CVX), Devon Energy (DVN), and Occidental Petroleum (OXY) closed below prices not seen since the war in Iran erupted in February.
The U.S. digitally signed an agreement with Iran. However, details of the memorandum of understanding are not fully known. Reuters reported that Iran might get $300 billion in infrastructure spending. The report emphasized that the funding will not involve public money. It will come from private investments.
The energy sector’s decline comes at a crucial time. The Federal Reserve will announce its rate policy this afternoon at 2 p.m. While the Bank of Japan and the European Central Bank hiked rates, the U.S. central bank will likely hold rates.
The U.S. dollar’s strength, along with a rise in long-term bond yields (TLT), is pricing in the rate pause.
The drop in oil prices might prove temporary. The two countries still must negotiate the details of the peace treaty. Tensions in Israel and Lebanon might derail aspects of the ceasefire as well. If that happens, expect some volatility in the energy sector to eventually return.
