Oil prices retreat as US moves to boost supply amid Iran war
Oil prices pulled back as the US and its allies moved to ease supply fears, but markets remain on edge
20 March, 2026
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Oil prices eased on Friday while bonds nursed losses after global central bankers warned of inflation risks stemming from the ongoing war in the Middle East, which has sent markets into a tailspin.
Following a hectic week of monetary policy meetings across much of the Group of Seven (G7) and beyond, the key takeaway for investors has been the prospect of a more aggressive policy path.
Traders are no longer expecting a Federal Reserve rate cut this year. A hike from the Bank of England next month is seen as a close call, while sources said the European Central Bank may need to begin discussing rate increases in April and could tighten policy in June.
“There’s a lot of value in the signal,” said Vishnu Varathan, Mizuho’s head of macro research for Asia ex-Japan, referring to the hawkish rhetoric from central banks this week.
“It’s a message to markets that we are on top of this. You do not need to push yields unnecessarily higher because the yields are already starting to do the work for them.”
A rout in global bonds pushed yields to multi-month highs on Thursday, although the sell-off eased in Asia on Friday.
Trading in cash US Treasuries was closed due to a holiday in Japan, but futures edged marginally higher.
The yield on the two-year US Treasury note, which typically reflects near-term rate expectations, had jumped by more than 20 basis points in the previous session.
“Probably every day that goes by without an end to the war, or clear positive steps, increases the chances of that more adverse scenario for the bond market,” Thomas Mathews, head of markets for Asia-Pacific at Capital Economics, said of the possibility of rate hikes from major central banks by year-end.
So far this month, Germany’s two-year yield has risen by around 56 basis points, while yields on two-year British gilts have jumped 88 basis points.
Energy chokepoint
Brent crude futures were down 3 per cent at $105.43 a barrel on Friday, while U.S. crude fell 2.2 per cent to $94 a barrel, after leading European nations and Japan offered to join efforts to secure safe passage for ships through the Strait of Hormuz and the U.S. outlined moves to boost oil supply.
Still, both remained well above levels seen before the US-Israeli war on Iran, having risen by more than 40 per cent this month.
Natural gas prices have also soared, with those in Europe surging by as much as 35 per cent on Thursday, as Iranian and Israeli strikes targeted some of the Middle East’s most important gas infrastructure.
That prompted US President Donald Trump to tell Israel not to repeat its attacks on Iranian natural gas infrastructure.
“Even if the US leaves the conflict, Israel might not, and there may still be some strikes, with Iran retaliating, perhaps at a lower intensity,” said Alicia Garcia-Herrero, chief Asia-Pacific economist at Natixis.
“But this means that the Gulf will still be under pressure, so oil prices will not go back to $60. They may stay at $90, at least until the end of the year. So the shock is already unavoidable.”
Shares steady, dollar falls
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.18 per cent and was set for a weekly gain of roughly 0.7 per cent, snapping two straight weeks of losses.
The retreat in oil prices on Friday helped stabilise market sentiment, although moves remained volatile.
Nasdaq futures rose 0.3 per cent, while S&P 500 futures advanced 0.37 per cent, after both closed lower in the overnight cash session. EUROSTOXX 50 futures were up 0.87 per cent, while DAX futures jumped 0.8 per cent.
The dollar was meanwhile set for a weekly loss of more than 1 per cent, as investors priced in steeper rate hikes from other central banks this year compared with the Fed.
The euro last bought $1.1570, having jumped 1.2 per cent on Thursday, while sterling was steady at $1.3424 after a 1.3 per cent rise overnight.
Even the yen, which was close to 160 per dollar in the previous session, found some reprieve and last stood at 157.85.
The Japanese currency was also supported by hawkish comments from Bank of Japan Governor Kazuo Ueda on Thursday, after the central bank held rates steady but maintained its bias towards tighter monetary policy.
Yusuke Miyairi, Nomura’s JPY FX and rates strategist, said that while Ueda may have left the door open to a rate hike in April, it remained “premature” to conclude that such a move was imminent.
Elsewhere, spot gold was up 0.8 per cent at $4,686.97 an ounce.
