Oil Prices Drop 3% Amid US-Iran Deal Talks and Rising Inventories: Market Analysis

The global commodity and currency markets experienced significant shifts on Thursday, May 15, 2025, as oil prices tumbled over 3% amid growing optimism around a potential US-Iran nuclear deal and higher-than-expected crude inventories. Simultaneously, gold prices dipped on easing trade tensions, while the British pound gained ground following robust UK economic growth data. This article unpacks the key drivers behind these movements and their implications for investors and policymakers.

Oil Prices Plunge on Prospects of US-Iran Deal and Inventory Surge

Brent Crude and WTI Futures Decline
Oil prices faced intense selling pressure during early trading, with Brent crude futures (BZ=F) falling 3% to $64.08perbarrelandWestTexasIntermediate(CL=F)dropping3.5$60.92. The downturn was fueled by two critical factors: progress in US-Iran nuclear negotiations and a sharp rise in US crude stockpiles.

US-Iran Nuclear Deal Progress
Ali Shamkhani, a top advisor to Iran’s Supreme Leader, signaled Tehran’s readiness to finalize a nuclear agreement with the US under specific conditions. In an interview with NBC News, Shamkhani outlined Iran’s demands, including the immediate lifting of economic sanctions in exchange for commitments to abandon nuclear weapons development, dispose of highly enriched uranium stockpiles, and allow international inspections of civilian nuclear facilities.

This development followed remarks by former US President Donald Trump, who reiterated his desire for a deal but emphasized Iran must “permanently and verifiably” cease nuclear weapons pursuits. The potential lifting of sanctions could flood global markets with Iranian oil, exacerbating existing oversupply concerns.

US Inventories Add Pressure
The US Energy Information Administration (EIA) reported a 3.5 million barrel increase in crude inventories, far exceeding the 1.1 million barrel rise analysts anticipated. Total stockpiles now stand at 441.8 million barrels, heightening fears of a supply glut.

Market Reaction
Energy giants BP (BP.L) and Shell (SHEL.L) saw their shares decline by 4% and 2.7%, respectively, as lower oil prices weighed on valuations. Susannah Streeter, Head of Money and Markets at Hargreaves Lansdown, noted, “The dual pressures of rising US stockpiles and the prospect of Iranian oil returning to markets have traders bracing for prolonged oversupply.”

Gold Prices Dip as Trade Tensions Ease

Safe-Haven Demand Wanes
Gold futures (GC=F) fell 1.2% to 3,150.40perounce,whilespotpricesdropped0.93,150.40perounce,whilespotpricesdropped0.93,148.39. The decline reflects renewed investor optimism after the US and China agreed to a 90-day tariff truce, reducing demand for safe-haven assets like gold.

Fed Rate Cut Expectations Adjust
The de-escalation of trade tensions has bolstered economic outlooks, leading markets to scale back expectations for Federal Reserve rate cuts. Fed officials, including San Francisco Fed President Mary Daly, advocated for patience, while Chicago Fed President Austan Goolsbee highlighted underlying economic resilience.

Bond Yields Rise, Gold Suffers
Higher US Treasury yields, driven by reduced rate cut bets, further pressured gold. As a non-yielding asset, gold becomes less attractive when interest-bearing investments offer better returns. Jim Reid, Deutsche Bank Market Strategist, observed, “Fed funds futures now price fewer than two cuts this year—a stark shift from earlier expectations.”

Pound Strengthens on Strong UK GDP Data

UK Economy Outperforms Expectations
The Office for National Statistics reported a 0.7% GDP growth for Q1 2025, surpassing the 0.6% forecast and rebounding sharply from the 0.1% expansion in late 2024. This resilience defied concerns over rising employment costs and geopolitical uncertainties tied to US tariffs.

Currency Movements
The pound (GBPUSD=X) rose 0.2% against the dollar to $1.3286, while holding steady against the euro (GBPEUR=X) at €1.1858. Danni Hewson, AJ Bell Head of Financial Analysis, remarked, “The economy’s robustness has silenced critics, showcasing adaptability despite global headwinds.”

FTSE 100 Edges Lower
The FTSE 100 (^FTSE) dipped 0.2% to 8,569 points, reflecting broader market caution amid mixed commodity performances and geopolitical developments.

Broader Market Implications

Energy Sector Volatility
The oil market’s sensitivity to geopolitical developments underscores the sector’s volatility. A US-Iran deal could stabilize Middle Eastern relations but disrupt OPEC+ supply management efforts. Investors should monitor inventory reports and OPEC+ responses to navigate price swings.

Gold’s Role in Portfolios
While gold’s short-term appeal may wane amid risk-on sentiment, its long-term hedge against inflation and uncertainty remains intact. Market participants will watch for shifts in Fed policy and global trade dynamics.

UK Economic Outlook
The UK’s stronger growth trajectory could influence the Bank of England’s monetary policy. With inflation concerns lingering, policymakers may adopt a cautious stance on rate adjustments.

Conclusion

The interplay of geopolitical negotiations, economic data, and central bank policies continues to shape global markets. Oil prices remain at the mercy of US-Iran diplomacy and inventory trends, while gold faces headwinds from improving risk sentiment. The pound’s gains highlight the UK economy’s unexpected resilience, offering a counter-narrative to broader slowdown fears.

As markets digest these developments, investors should prioritize diversification and stay attuned to upcoming data releases, including OPEC+ meetings, Fed communications, and global trade updates. In an era of rapid geopolitical shifts, agility and informed decision-making will be key to capitalizing on emerging opportunities.