Oil prices fell sharply on Monday, dropping to their lowest levels in two weeks, as growing optimism over a possible peace agreement between Washington and Tehran lifted hopes that the Strait of Hormuz could reopen to normal traffic. Brent crude futures fell $6.01, or 5.8%, to $97.53 a barrel, while US benchmark West Texas Intermediate dropped $5.65, or 5.9%, to $90.95. Both contracts were trading at their lowest since 7 May.
The moves came after President Donald Trump said on Saturday that the two sides had largely agreed on a deal that would reopen the Strait of Hormuz, the critical waterway through which one fifth of global oil and liquefied natural gas shipments had passed before the conflict began. The strait has remained effectively closed since February 28, when Tehran shut it following US and Israeli airstrikes. On Sunday, however, Trump added that he had told his representatives not to rush into any agreement, with senior US officials indicating that final approval could take several days.
US Secretary of State Marco Rubio described negotiations on Monday as "still a work in progress," while saying there was "a pretty solid thing on the table" regarding Iran's ability to open the strait and enter into a time-limited negotiation on nuclear matters.
Markets responded to the diplomatic signals, but analysts cautioned against reading the price drop as a resolution of the underlying supply crisis. "The supply shortfall of 10 to 11 million barrels per day of crude will not be addressed immediately and will lead markets to continue drawing down stocks until Middle East crude production is restored," said June Guo, analyst at Sparta Commodities, adding that a recovery was still months away. UBS analyst Giovanni Staunovo echoed that caution, saying the key variable for oil markets remained physical flows. "Until now, flows through the strait remain restricted," he said.
Analysts expect the return to normal shipping through the strait to take months, as damaged oil and gas infrastructure undergoes repairs. Brent, despite Monday's drop, remains up by more than a third compared with its price before the war began.
