Oil falls as Middle East supply fears recede, risk appetite rises

The new week of trading begins on a more upbeat note across the board. US stock index futures see strong gains, Treasury yields decline, and bitcoin rallies over 4%. At the same time, crude oil falls almost 3% as market participants strip out part of the geopolitical risk premium that had been priced in.

The greenback trades in a mixed fashion. It holds steady versus the euro and Swiss franc, strengthens against the yen, pound and Canadian dollar, and weakens versus the Australian and New Zealand dollars.

Among the major currencies, the Aussie dollar posts the biggest gains while the yen lags.

This week's focus is on the meeting between President Trump and President Xi.

Chinese President Xi Jinping is set to travel to the US from Wednesday to Friday, with the key encounter with President Donald Trump slated for Thursday at the White House.

Trade is expected to dominate the agenda. Market participants will look for advances on extending the tariff ceasefire, reducing duties on certain nonstrategic items, and settling disagreements over US farm exports and China's rare-earth mineral supplies.

Discussions are also likely to cover artificial intelligence, technology curbs, Taiwan and the Middle East. In preparation for the summit, Treasury Secretary Scott Bessent held talks with Chinese Vice Premier He Lifeng over the weekend.

For financial markets, any indications of easing trade frictions could boost equities, the Australian and New Zealand dollars and other risk-linked assets. A failure to make headway—or fresh tariff warnings—could swiftly undo that mood.

What occurred in the Middle East during the weekend?

The region stays volatile, yet the crude market is concentrating on steady supply and the prospect of diplomatic advances.

The Houthi group, backed by Iran, fired missiles and drones at sensitive locations in Riyadh and an Aramco site in Yanbu. The strikes interrupted Saudi Arabia's East-West pipeline, which moves crude to the Red Sea and enables Saudi shipments to bypass the Strait of Hormuz.

But Saudi Arabia has managed to reroute additional crude via the Strait of Hormuz. Saudi shipments using that corridor have reportedly risen to approximately 2.9 million barrels a day. This has calmed short-term worries over a significant supply disruption.

Diplomatic optimism is also reviving. President Trump has indicated a readiness to meet Iranian President Masoud Pezeshkian at the UN General Assembly, and Iran has set out its terms for reviving talks. China has also pressed Iran to rein in the Houthis after the assaults on Saudi Arabia.

The mix of ongoing oil shipments and the chance of a diplomatic resolution is pulling crude prices down—though the wider geopolitical risk remains.

WTI crude for November delivery stands at $93.51, a decline of $2.57 or 2.67%.

For market participants, this is a fresh caution to trade based on price moves rather than just news. Over the weekend, headlines were worrying, yet the market could not hold the geopolitical premium as real oil flows proved more robust than anticipated.

Snapshot of the forex market

Currency trading ranges stay fairly tight:

• EURUSD: 1.1472 to 1.1486 — 14 pips
• USDJPY: 156.59 to 157.30 — 71 pips
• GBPUSD: 1.3369 to 1.3393 — 24 pips
• USDCHF: 0.8217 to 0.8238 — 21 pips
• USDCAD: 1.3984 to 1.4023 — 39 pips
• AUDUSD: 0.7118 to 0.7135 — 17 pips
• NZDUSD: 0.5714 to 0.5732 — 18 pips

The ranges for EURUSD and GBPUSD are especially tight. That leaves both pairs scope to expand if the North American session triggers a technical breakout or a new fundamental driver.

US stock-index futures benefit from lower rates and falling oil

The drop in crude, declining Treasury yields and optimism over Middle East diplomacy are boosting risk appetite. Futures indicate at 8:10 AM ET:

• Dow industrial average futures: +457 points
• S&P 500 futures: +56.75 points
• Nasdaq 100 futures: +332 points

US Treasury yields decline in step with crude oil

Yields drop across the curve:

• 2-year: 4.7161%, down 2.7 basis points
• 5-year: 4.8108%, down 4.1 basis points
• 10-year: 4.9514%, down 4.5 basis points
• 30-year: 5.2899%, down 3.7 basis points

The fall in yields provides further support for equities. Still, the 10-year yield hovers near the key 5.00% threshold, making that market a crucial gauge of risk appetite.

Bitcoin climbs to its highest since January 28

Bitcoin is around $84,785, gaining $3,606 or 4.44%. A Friday technical post, 'Bitcoin technicals: The price breaks above 100/200 hour MAs and buyers overwhelm the sellers,' noted the breakout.

The rally has pushed bitcoin to an eight-month peak. The advance is supported by stronger risk appetite, cheaper oil and a friendlier US regulatory environment. News that the SEC granted a five-year exemption for platforms dealing in tokenized equities and securities has also boosted sentiment.

Bitcoin bulls are stepping up their push, but after such a steep climb, maintaining the breakout zones is crucial. An upward move is positive; sustaining those levels is what proves that buyers still dominate.

Other asset prices

• Gold: $4,354.26, down $23.03 or 0.53%
• Silver: $66.18, down 0.06%
• Copper: $6.7880, up 1.44%
• WTI crude oil: $93.51, down $2.57 or 2.67%

Gold declines even though Treasury yields drop. The better risk mood and lower need for geopolitical hedges outweigh the usual support from falling rates.

Austan Goolsbee resumes public speaking

Chicago Fed President Austan Goolsbee, who votes on the FOMC in 2027, resumed his public appearances after last week's Fed meeting.

Goolsbee stated that the central bank needs the resolve to tackle inflation and requires solid proof that price growth is heading back to the 2% goal. He also noted that the Fed has no employment issue at present but does face an inflation issue.

His main point focused on where inflation originates. If temporary supply disturbances are behind price increases, the Fed might have some room to maneuver. But if robust demand is fueling inflation, then policymakers must factor that in, according to Goolsbee.

These remarks tilt hawkish. While he still expects inflation to fall back to 2%, he is not prepared to claim success or hint at rate cuts without more definitive data.