Global oil prices fell in European trade on Tuesday on track for the second loss, almost touching three-week lows as concerns about Middle East supply disruptions fade as Iran-Israel tensions calm down. 

Prices are also pressured by weak manufacturing data in Europe and the UK, which indicate weaker growth and fuel demand.

Now markets await initial US crude inventory data from the American Petroleum Institute, expected to show a buildup for the third straight week. 

Prices 

US crude fell 1.5% to $80.92 a barrel, with a session-high at $82.98.

Brent prices fell 1.4% to $86.06 a barrel, with a session-high at $88.17. 

On Monday, US crude lost 0.1% after touching a three-week low at $80.74, while Brent slipped 0.1%, after hitting March 28 lows at $85.82. 

Iran-Israel Tension Soothes 

Iran’s foreign minister Hussein Amir said to the NBC that Tehran doesn’t intend to respond to Israel’s retaliation strike on Friday. 

Such remarks reduced the concerns of an escalation to a full-scale war with Iran with markets now once again focused on supply and demand dynamics. 

Global Manufacturing 

Earlier European and UK data showed the manufacturing sector suffering serious declines this month. 

It’s the latest series of data which showcases the slowdown of the global economy in the first half of the year.  

US Stocks

Later today, initial US inventory data from the American Petroleum Institute will be released, expected to show a buildup for the third straight week. 

Just yesterday the UK FTSE 100 index locked in the highest closing price ever, and today the index opened with yet more record highs after strong UK services data. 

The gains come amid improving risk appetite as the Bank of England prepares to cut interest rates soon. 

The pound’s drop against major rivals also helped improve the standing of UK exporters. 

Global sentiment improved as the concerns about an Iran-Israel conflict faded, especially following the latest remarks by the Iranian Foreign minister.  

The Price 

The FTSE 100 index rose by 0.80% so far today to 8,076, a fresh record high, after closing up an impressive 1.6% yesterday, the fourth profit in a row as the pound weakened. 

Improving UK Services Activity 

Earlier London data showed the UK services sector surged to 54.9 in April, beating estimates of a drop to 53.00. 

The sudden improvement in services overshadowed other data that showed the UK manufacturing PMI contracting to 48.7. 

UK Rates

A Bloomberg’s poll shows the Bank of England will likely start cutting UK interest rates starting June, with a total of 5 rate cuts expected this year. 

The odds of a June interest rate cut are up to 50%, with the markets now fully pricing in rate cuts in August and September. 

The Pound 

The pound fell 0.1% on Tuesday against the dollar, extending gains for the fourth straight session and approaching a five-month trough at $1.2299 on the prospects of a wider rate gap with the US. 

Iran-Israel Tension Soothes 

Iran’s foreign minister Hussein Amir said to the NBC that Tehran doesn’t intend to respond to Israel’s retaliation strike on Friday. 

Sterling fell in European trade on Tuesday against a basket of major rivals, extending losses for the fourth straight session against the dollar and almost touching five-month lows and trading below $1.23 for the first time since November 2023 on rate cuts outlook by the BOE. 

The markets expect the Bank of England to cut interest rates starting June, which would widen the rate gap with the US. 

Now investors await important UK manufacturing and services data to gather more clues on the future of UK rates.

The Price 

The GBP/USD pair fell 0.15% today to $1.2332, with a session-high at $1.2359.

The pair closed down 0.2% on Monday, the third loss in a row, plumbing five-month lows at $1.2299. 

UK Rates

There’s now a 50% chance of a BOE interest rate cut in June, and a 100% chance of such a cut in August.

UK Inflation Outlook 

Bank of England Andrew Bailey said last week there’s nothing in inflation data that should raise concerns. 

Bailey expects upcoming inflation numbers to register a steep drop, reiterating his belief that Europe and the UK are facing less of an inflation threat than the US. 

Interest Rate Gap

The current US-UK interest rate gap stands at 25 basis points, and will likely increase to 50 basis points in June as the BOE is expected to cut rates while the Fed is estimated to hold them. 

The UK FTSE 100 Index rallied on Monday for the fourth straight session and closed at a record high amid a strong risk appetite, with the Bank of England preparing for a likely rate cut in the summer. 

The pound’s tumble against major rivals also underpinned the stocks of British exporters. 

Global sentiment improved as the concerns about an Iran-Israel conflict faded, especially following the latest remarks by the Iranian Foreign minister.  

The Index

The FTSE 100 index closed up 1.62%, or 128.02 points at 8,023, a record close high.

The previous record close happened on February 20, 2023 at 8,020. 

The FTSE 100 closed Friday up 0.25%, the third profit in a row as the pound weakened.

The index lost 1.25% last week, the second weekly loss in three weeks amid growing geopolitical tensions in the Middle East back then. 

UK Rates

A Bloomberg’s poll shows the Bank of England will likely start cutting UK interest rates starting June, with a total of 5 rate cuts expected this year. 

The odds of a June interest rate cut are up to 50%, with the markets now fully pricing in rate cuts in August and September. 

The Pound

The pound tumbled 0.6% against the dollar today, plumbing five-month lows at $1.2299 amid concerns about a widening UK-US rate gap. 

Iran-Israel Tension Soothes 

Iran’s foreign minister Hussein Amir said to the NBC that Tehran doesn’t intend to respond to Israel’s retaliation strike on Friday.