US Treasury Secretary Scott Bessent said he expects oil prices to decline sharply once the Iran conflict comes to an end, with crude potentially falling to as low as $40 a barrel as a result of oversupply in the market.

According to Bessent, such a drop in oil prices would in turn push bond yields lower. Yields have surged in recent trading. The link Bessent draws between oil and Treasuries reflects a broader dynamic markets watch closely: lower crude prices ease inflation pressures, and cooler inflation expectations typically reduce the yields investors demand to hold long-dated government debt. Treasury yields are a benchmark for borrowing costs across the economy, including mortgages and corporate debt, so shifts in the oil-inflation outlook ripple well beyond energy markets.

Bessent's $40-a-barrel forecast also comes against a backdrop of ample global supply, with major producers having added output in recent years, while any resolution to the Iran conflict would remove a geopolitical premium that geopolitical tension has historically added to crude prices.

The Treasury Secretary also downplayed a proposal by Norway's sovereign wealth fund to reduce its holdings of US Treasuries. Norway's fund is one of the world's largest sovereign wealth funds, and its asset-allocation decisions are watched as a signal of how major foreign investors view US government debt, a market that depends heavily on continued overseas demand.

Source: Economic Times Markets