Will oil prices experience a "big plunge"? Bessent: After the end of the Iran conflict, crude oil may fall to $40-50.

U.S. Treasury Secretary Becerra stated that once the Iran conflict ends, international oil prices could see a substantial drop, potentially falling to $40 to $50 per barrel. As energy prices retreat, the global bond yields, which have been driven up by rising oil prices and inflation concerns, are also expected to decline. He mentioned in an interview on Friday that after the current Iran conflict ends, the global oil market may return to a significant oversupply. Becerra said, We will eventually get through this Iran conflict, and I expect prices to drop. He further indicated that due to a substantial new supply entering the market in the future, crude oil could fall to $50, or even $40, at which point there may be a very evident oversupply in the oil market. However, Becerra did not provide a specific timeline for when the Iran conflict would end. Currently, there is no clear indication that the fighting is subsiding. This week, a Republican member of the House Armed Services Committee described the current military situation as "stuck in a stalemate." The renewed military actions between the U.S. and Iran this week led to a noticeable rise in international energy prices. On Friday, Brent crude was still trading above $95 per barrel, near its highest level since July; West Texas Intermediate (WTI) crude remained around $91 per barrel. This implies that if Becerra's prediction about post-conflict oil prices comes true, crude oil prices could fall by nearly half from current levels. The recent continuous rise in oil prices has become one of the significant pressures facing the global bond market. Rising energy prices have heightened market concerns about a resurgence of inflation, prompting investors to adjust their expectations for future interest rates upward. This week, the yield on U.S. 10-year Treasury bonds briefly rose to its highest level since 2023, with benchmark bond yields in several countries also increasing in tandem. Becerra believes that the current linkage between interest rates and oil prices is particularly evident. He stated that the correlation between interest rates and oil prices is at a very high level and that once the Iran conflict ends, the decline in energy prices will help relieve overall inflationary pressure and further push market interest rates down. He noted, The Iran conflict will eventually come to an end, at which point both interest rates and the short-term surge in overall inflation will come down. This assessment suggests that, in Becerra's view, the recent significant increases in U.S. Treasury yields do not entirely indicate a structural deterioration in the long-term inflation outlook for the U.S., as a considerable portion of the pressure stems from the energy price shocks triggered by the Iran conflict. If global oil supply loosens after the war ends, a swift drop in oil prices could simultaneously alleviate both inflation and bond market pressures. Meanwhile, Becerra downplayed the potential impact of Norway's sovereign wealth fund possibly reducing its holdings of U.S. Treasury bonds. As one of the world's largest sovereign wealth funds, Norway's sovereign wealth fund is considering decreasing its allocation in U.S. Treasuries. According to relevant analyses, if this plan is implemented, its holdings in U.S. government bonds could shrink by about $75 billion. Given the huge financing needs of the U.S. government and growing sensitivity among investors regarding long-term Treasury demands, this news initially raised further concerns in the market about demand for U.S. government debt. However, Becerra believes that Norway is not simply withdrawing from U.S. assets but is more likely reallocating funds within U.S. assets to seek higher yields. He stated that he would strongly support Norway's sovereign wealth fund if it plans to increase investments in bonds related to Fannie Mae, Freddie Mac, and Ginnie Mae. Fannie Mae and Freddie Mac are U.S. government-chartered housing finance agencies, and Ginnie Mae is a federal housing finance agency, with their related bonds often providing yields above U.S. Treasury bonds. In Becerra's view, even if the Norwegian fund reduces its U.S. Treasury holdings, it does not necessarily mean that foreign capital is completely withdrawing from U.S. financial assets. Nonetheless, news of a potential reduction in U.S. Treasury holdings by the Norwegian fund still comes at a relatively sensitive time. A measure of U.S. federal debt has recently surpassed a record $40 trillion, and the massive financing demand means that the U.S. government needs to continuously attract domestic and foreign investors to purchase Treasury bonds. As a result, the U.S. Treasury market is currently affected by multiple factors, including fiscal deficits, massive bond supply, rising energy prices, and inflation expectations. Becerra's assessment views the trajectory of oil prices after the end of the Iran conflict as a critical variable in alleviating these pressures. If crude oil indeed drops sharply from the current above $90 level to the $40 to $50 range, it could not only quickly reduce energy inflation but also serve as a significant catalyst for pushing U.S. Treasury yields back down.