TLDR
- Treasury Secretary Scott Bessent predicts oil could fall to $40 a barrel once the Iran conflict ends
- Brent crude was trading above $95 a barrel on Friday, near its highest level since July
- Ten-year US bond yields hit their highest point since 2023 this week
- Bessent says oil prices and interest rates are at their highest-ever correlation
- Norway’s sovereign wealth fund is considering cutting its US Treasury holdings by $75 billion
Treasury Secretary Scott Bessent says oil prices could fall as low as $40 a barrel once the war with Iran is over. He made the comments in an interview with Steve Bannon that aired Friday.
“We’re going to get on the other side of this Iran conflict, and I expect that oil will come down,” Bessent said. He added that markets could see $50 or even $40 crude because of how much new supply is coming online.
Bessent did not give a timeline for when the conflict would end. One Republican lawmaker on the House Armed Services Committee described the military situation as “stalled” this week.
Right now, oil is far from cheap. Brent crude was trading above $95 a barrel on Friday, near its highest level since July. West Texas Intermediate was around $91.
Prices jumped after military strikes between the US and Iran earlier this week. The rise in energy costs has added to inflation worries across global markets.
Bond Yields Hit Highest Level Since 2023
Higher oil prices have pushed up inflation concerns, and that has pushed up bond yields. Ten-year US Treasury yields hit their highest point since 2023 this week.
Bessent said the connection between oil prices and interest rates is at an all-time high. “If you go and look, the interest rates, this is the highest correlation they’ve ever had to the oil price,” he said.
He believes once the Iran conflict ends and oil falls, inflation will cool and yields will come down with it. “The Iran conflict will end, interest rates and the spike in headline inflation will come down,” he said.
Federal debt recently passed $40 trillion, raising questions about investor appetite for US government bonds.
Norway Fund Looks to Shift Away From Treasuries
Norway’s sovereign wealth fund, one of the largest in the world, is considering cutting its US Treasury holdings. According to Bloomberg analysis, the move could reduce its holdings by around $75 billion.
Bessent played down concerns about the shift. He said Norway’s fund is simply looking for better yields through other US assets like Fannie Mae and Freddie Mac bonds, which typically offer a premium over Treasuries.
Fannie Mae and Freddie Mac are government-chartered home lending giants. Ginnie Mae is a related federal housing finance agency.
Bessent said he supports Norway moving into those assets. “I am the biggest advocate for that,” he said.
The Norway news came at a sensitive time, as US borrowing remains at record levels and markets are watching for any signs of weakening demand for US debt.
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