Bessant: Oil prices will fall to $40 after the Iranian conflict ends, and bond yields will subsequently decline.

U.S. Treasury Secretary Bessant offered an extreme prediction about the post-war oil market, contradicting current pricing: post-war oil prices could plummet to $40 per barrel, dragging down benchmark bond yields which are at multi-year highs.

In an interview on Friday, Bessant stated that there is a historically high correlation between current oil price increases and bond yields, and that this situation will reverse as tensions with Iran ease. He said:

The conflict in Iran will eventually end, and the short-term surge in interest rates and overall inflation will subside.

Bessant believes that the crude oil market will be "severely oversupplied" after the Iranian conflict ends, and oil prices may fall to $50 or even $40.

Meanwhile, Norway's sovereign wealth fund, one of the world's largest, has proposed reducing its holdings of government bonds. Bloomberg analysis suggests this move could reduce its U.S. Treasury holdings by $75 billion.

Oil Price Forecast: Oversupply Will Dominate Post-Conflict Market

In an interview, Bessant predicted that with the end of the conflict in Iran, the global oil market will face a severe oversupply, and oil prices have significant room to fall. He said:

We expect the oil market to be well-supplied after the conflict ends, and we may see crude oil prices fall to $50 or even $40 per barrel as a large amount of new supply is about to enter the market.

However, he did not provide a specific timeline for when the conflict would end. Republican members of Congress described the current military situation as "at a stalemate" before the House Armed Services Committee this week, with no apparent signs of easing in the short term.

On Friday, Brent crude oil prices traded above $95 a barrel, the highest level since July, while WTI crude oil was around $91, both boosted by the US-Iran military strikes this week.

Furthermore, Bessant directly attributed the recent rise in bond yields to climbing energy prices, believing that the current correlation between the two is at an all-time high. He said:

If you look at it, the correlation between interest rates and oil prices is the highest it has ever been.

In his analytical framework, once the situation in Iran calms down and oil prices fall, inflationary pressures will ease, and bond yields will follow suit.

Norwegian sovereign wealth fund: Proposal to reduce US debt has limited impact.

As one of the world's largest sovereign wealth funds, Norway's sovereign wealth fund, has remained calm about its plan to reduce its holdings of US Treasury bonds. Bessenter stated:

They simply want to use other US assets to boost yields.

He stated that if the Norwegian fund were to instead purchase bonds from Fannie Mae, Freddie Mac, and Gilead Sciences, "I would be the most steadfast supporter."

Fannie Mae and Freddie Mac are the two major government-chartered mortgage lenders in the United States, while Ginnie Mae is another federal housing finance institution whose bonds typically offer a premium over U.S. Treasury bonds.

According to Bloomberg analysis, if the proposal is implemented, it could mean a reduction of approximately $75 billion in its holdings of U.S. Treasury bonds.

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