Oil Prices Rise as U.S.-Iran Peace Deal Deadline Approaches

Oil prices rose as the 60-day deadline for the U.S. and Iran to secure a peace deal is expiring Monday, with Iran ruling out the possibility of an extension, according to state media. A senior Iranian official also told Reuters that Tehran would take an offensive stance if diplomacy with the U.S. fails.

West Texas Intermediate futures gained 2.6% to settle at $84.50 per barrel. Global benchmark Brent crude advanced 2.7% to close at $90.87 a barrel.

Elevated energy prices in the wake of the Middle East conflict breaking out months ago have raised concerns about inflationary pressures, though the latest batch of mild inflation data has offered some reassurance to investors.

Strategists at Barclays see the rise in rates less about inflation and more about the U.S. budget deficit, high levels of issuance related to artificial intelligence competing with Treasurys, and higher term premiums, or the extra yield investors are seeking to hold government debt.

"What is notable today is not the existence of these pressures, but that they appear strong enough to overwhelm individual soft-data releases," Anshul Pradhan, head of U.S. rates research at Barclays Capital, said in a note Monday. "Three independent releases argued for lower yields this month; long end yields moved higher anyway."

Bond yields rose during Friday's session after retail sales fell by a surprise 0.6% last month, which came after a flat producer price index report month-on-month in July.

Last week, the Treasury Department reported that the U.S. budget deficit reached its highest monthly level in more than five years, with rising Medicare costs and interest on the federal debt serving as contributors. The year-to-date total for the federal government's fiscal year has exceeded the amount seen during the same period last year.

"We believe investors are increasingly evaluating Treasury securities through the lens of longer-term fiscal sustainability and less through the lens of inflation, monetary policy, and growth, at least for the longer end of the Treasury curve," wrote Anthony Saglimbene, Ameriprise chief market strategist, in a Monday note.

Investors are now awaiting July's Federal Open Market Committee meeting minutes, due Wednesday, for further insights into the Federal Reserve's latest monetary policy decisions and potential future rates trajectory.

The Fed voted 9-3 to hold rates steady at between 3.5% and 3.75% for the fifth consecutive meeting on July 29. The three dissenting committee members — Beth Hammack of Cleveland, Neel Kashkari of Minneapolis and Lorie Logan of Dallas — instead called for a 25 basis point hike.