Oil extends gains as Hormuz deal remains elusive

Oil prices surged in early trading on Monday, while US equity futures remained stable as investors awaited progress on a deal to reopen the Strait of Hormuz. Global benchmark Brent crude started the day above US$84 a barrel, having climbed more than 5% over the previous three sessions. The S&P 500 contracts were also flat, having closed 0.6% higher on Friday at a new record high. The US dollar showed only minor fluctuations against major currencies.

Negotiations between Iran and Oman over reopening the Hormuz Strait failed to yield a final agreement by the weekend. Tehran subsequently reiterated a long list of demands to Washington, suggesting that any short-term reprieve for oil and gas supplies may be limited. However, President Donald Trump signaled patience during an interview with Axios, stating that the US could wait for Iran's economic difficulties to ease its stance.

This follows a series of Trump's threats of massive airstrikes against Iran, which he later withdrew, citing his desire to give negotiations a chance.

Investors are not overly pessimistic, given Trump's likely willingness to back off from his threats once more, especially considering his approval ratings have hit new lows. My Bui, an economist at AMP Ltd, noted in a client note that "so for now, it remains business as usual, with shares still supported by solid fundamentals, strong economic growth and rising productivity."

Futures markets indicate that Asian markets could rise in early trading, catching up with US peers after a sharp slowdown in the nation's jobs market. Employers unexpectedly reduced their workforce in July, and hiring in the previous two months was revised downward, pointing to a weaker labor market than previously thought. Consequently, traders reduced the likelihood of a Federal Reserve rate hike at its September meeting to roughly 43%, down from 64% a week prior, according to Bloomberg swaps data.

Asian stock markets responded positively, with Australia's S&P/ASX 200 Index gaining 0.4% on Friday night, while Japan's benchmark index surged almost 1%. The US dollar's weakness and lower crude oil prices may also bolster Asian currencies. Strategist Wee Khoon Chong from BNY in Hong Kong highlighted a "positive backdrop for Asia-Pacific with softer US dollar, lower crude oil prices and the broad recovery of equity sentiment" in his note to clients.