Oil prices jumped and stocks tumbled Tuesday, as President Donald Trump's 8 p.m. ET deadline for Iran to reopen the Strait of Hormuz approached without resolution.
The price of U.S. crude oil jumped as high as $117.63 per barrel, but later fell back to trade around $115. International Brent crude oil rose as high as $111.80 per barrel, before trading flat, around $109, by the afternoon.
Stocks, meanwhile, dropped on near constant headlines about the war, although by 1:45 p.m. ET were off their worst levels of the day. The S&P 500 was down 0.4% and the Nasdaq Composite dropped 0.6%. The Dow fell 200 points or 0.3% and the Russell 2000 index, which tracks smaller companies, rose slightly.
U.S. Treasury bonds, which influence consumer interest rates, also fell, sending rates higher. The 10-year yield rose to 4.36%. The average 30-year mortgage rate rose slightly to 6.44%, significantly higher than the 5.99% rate the 30-year hit before the war.
“Oil prices remain the key driver as investors grapple with a broadening supply shock, as well as occasional hopes for de-escalation of the Middle East conflict and an easing of supply chain disruptions,” BlackRock analysts said Monday.
As of Tuesday, the average price per gallon of retail gasoline was $4.14. The average price per gallon of diesel fuel was $5.64, nearing its 2022 all-time high of $5.82.
"We forecast retail gasoline prices to peak at a monthly average of close to $4.30 per gallon (gal) in April," the U.S. Energy Information Administration said in the latest edition of its Short Term Energy Outlook, released Tuesday. The federal agency also projected that diesel prices would "peak at more than $5.80/gal in April."
At the same time, Trump continued to ramp up his threats against Iran.
Early Tuesday, he wrote on Truth Social that "A whole civilization will die tonight" if a deal with Iran were not reached and the Strait of Hormuz was not reopened by his deadline.
For market participants, however, it did not go unnoticed that Trump's post also contained a suggestion that perhaps "smarter, and less radicalized minds prevail" in U.S. talks with Iran's current leaders.
Since the war with Iran started Feb. 28, Trump has repeatedly announced a pause in strikes or extended talks just before deadlines that he has set.
"Barring any movement on the diplomatic front, it’s going to be hard for investors to take on much risk ahead of the President’s 8 PM deadline," analysts at Bespoke Investment Group wrote in a note. "At no time would a Taco Tuesday be more welcome than today, but the President has shown no signs of backing down," they added, referring to a frequently used Wall Street acronym that stands for "Trump Always Chickens Out."
The price of oil has been whipsawed by constant headlines and social media posts from the president since the war began.
"The strategic picture has hardened into two divergent paths," analysts at Société Générale wrote. "Either we get a fragile détente —no ground war, controlled escalation, gradual supply recovery– or a protracted conflict with boots on the ground and structurally higher risk premia as countries respond with extreme stockpiling."
"U.S. signalling now leans toward the latter," they added.
