Oil Jumps More Than 3% as U.S. Stock Futures Fall After Trump Rejects Iran Proposal

NEW YORK - U.S. stock-index futures fell Monday morning while crude oil prices jumped more than 3% after President Donald Trump rejected an Iranian proposal aimed at ending the conflict and reopening the Strait of Hormuz.

The market reaction renewed concerns that elevated energy prices could keep inflation higher and force the Federal Reserve to maintain tighter monetary policy for longer.

Reuters reported that at 5:42 a.m. Eastern time, Dow futures were down 187 points, or 0.36%, while S&P 500 futures were down 0.49%.

Nasdaq 100 futures were down 0.98%, indicating heavier pressure on technology shares ahead of the opening bell.

Crude oil moved sharply in the opposite direction.

Brent crude futures were up $3.98, or 3.82%, at $108.30 a barrel shortly before 6 a.m. Eastern time, according to Reuters.

U.S. West Texas Intermediate crude was trading at $95.93 a barrel, also up approximately 3.8%.

The moves followed Trump's announcement Saturday that he had rejected Iran's latest proposal for ending the conflict and reopening the Strait of Hormuz.

Iran presented the proposal during the United Nations General Assembly in New York last week and said it had been transmitted to Washington through Qatari mediators.

Iranian officials said the plan could begin a seven-day process toward reopening the strait and pausing regional fighting if Tehran's conditions were accepted.

The proposal included demands involving sanctions relief, frozen Iranian assets and broader negotiations between the two countries.

U.S. Ambassador to the United Nations Mike Waltz said Sunday that Trump rejected the proposal because Iran was seeking major concessions at the beginning of the process while promising negotiations afterward.

Iran has continued to argue that reopening the Strait of Hormuz depends on its conditions being met.

Despite rejecting the current proposal, Trump told Axios Sunday that he expects American negotiators to continue discussions with Iran this week.

That means diplomatic contacts have not ended, although Washington and Tehran remain divided over the terms of any agreement.

Hormuz remains central to oil markets

The Strait of Hormuz is one of the world's most important energy shipping routes.

The seven-month conflict has sharply reduced traffic through the waterway at various points and disrupted normal oil and refined-product flows.

Shipping through Hormuz has recently improved, providing some additional supply to global markets.

Preliminary Kpler data cited by Reuters showed shipments through the strait were on pace to reach approximately 7.4 million barrels per day in September.

Overall crude exports from major Middle Eastern producers were expected to reach approximately 12.8 million barrels per day this month, their highest level since the war began in February.

Those improving flows have helped relieve some supply pressure, but traders remain concerned that continued fighting or renewed restrictions in Hormuz could again disrupt exports.

Oil nearly 50% above prewar levels

Reuters reported that oil futures are now nearly 50% higher than they were before the conflict began in late February.

Brent crude has gained nearly 20% during September alone.

Refined petroleum products have experienced even sharper price increases.

Diesel prices have reached record levels in several markets amid limited global refining capacity and disruptions to fuel supplies.

Those energy costs are increasingly important for the broader U.S. economy because fuel prices affect transportation, manufacturing, agriculture and consumer expenses.

Inflation concerns return

Higher oil prices can eventually feed through to gasoline, diesel, airline costs, shipping and prices for goods transported across the economy.

That has contributed to concerns that inflation could remain above the Federal Reserve's preferred level.

Reuters reported that investors are increasingly pricing in another Federal Reserve interest-rate increase at the central bank's October meeting.

CME Group's FedWatch tool showed traders assigning approximately a 70% probability to another increase of at least 25 basis points, according to Reuters' Monday U.S. market report.

The Federal Reserve raised its benchmark rate by 25 basis points earlier this month.

Treasury yields move higher

The inflation and interest-rate concerns also pushed U.S. government bond yields higher Monday.

The yield on the 30-year Treasury rose approximately two basis points to 5.517%, according to Reuters.

That placed the long-term yield near its highest level since 2004.

The 30-year yield has risen approximately 27 basis points during September.

Two-year Treasury yields have climbed approximately 55 basis points this month as investors have increased expectations for additional Federal Reserve tightening.

Higher Treasury yields can put pressure on stocks because they increase borrowing costs and make government bonds more competitive with equities.

Technology and other growth stocks can be particularly sensitive to rising rates because much of their valuation is based on expected future earnings.

Markets balancing several developments

Investors are also assessing positive developments in U.S.-China trade relations following President Xi Jinping's visit to Washington.

The United States and China reached an agreement last week providing more favorable tariff treatment for $30 billion of goods in each direction.

The countries also extended their existing trade truce through Jan. 10.

That provided some relief on trade policy, but Monday's early market activity showed Middle East energy risks dominating sentiment before the opening bell.

Investors are also awaiting several major U.S. economic reports this week.

The August Personal Consumption Expenditures price index, the Federal Reserve's preferred inflation gauge, and the September employment report are among the data expected to influence expectations for interest rates.

Several Federal Reserve officials are also scheduled to speak Monday.

What happens next

The direction of oil and financial markets could depend heavily on whether the United States and Iran make progress in renewed negotiations this week.

Trump has rejected Tehran's current proposal but says he expects negotiations to continue.

Iran says diplomacy remains the only path to resolving the conflict while maintaining that its conditions must be met before the Strait of Hormuz is fully reopened.

For markets, the immediate concern is whether the diplomatic stalemate keeps crude prices elevated long enough to produce another sustained increase in inflation.

Stock futures, oil prices and Treasury yields can change rapidly before and after the opening bell, making Monday's figures a snapshot of early trading rather than final market performance.