Oil prices experienced a significant drop as optimism grew around a potential agreement between the United States and Iran, which could signal a de-escalation of regional tensions and potentially reopen key shipping lanes.
On Saturday, U.S. President Donald Trump indicated that an accord with Tehran was "largely negotiated," with details expected soon. However, the following day, he advised his negotiating team against haste, emphasizing the need for careful finalization. "Both sides must take their time and get it right. There can be no mistakes!" Trump posted on Truth Social on Sunday.
By Monday morning in Asian trading, the global oil benchmark Brent crude saw a 5% decrease, settling at $98.36 per barrel. Concurrently, U.S.-traded crude futures fell by 5.3% to $91.50. These price movements reflect market anticipation of reduced geopolitical risk and the potential easing of supply constraints.
President Trump had previously stated that any deal would involve the reopening of the critical Strait of Hormuz shipping lane. This vital waterway, through which approximately one-fifth of the world's oil and liquefied natural gas (LNG) typically flows, has been effectively impassable since the conflict commenced on February 28.
Trump shared on social media on Saturday that he had a "very good call" with leaders from Saudi Arabia, the United Arab Emirates, Qatar, and other nations concerning a "Memorandum of Understanding pertaining to PEACE." He further stated, "An agreement has been largely negotiated, subject to finalization between the United States of America, the Islamic Republic of Iran, and the various other Countries, as listed." He added that "Final aspects and details of the deal are currently being discussed, and will be announced shortly."
Additionally, Trump reported a positive conversation with Israeli Prime Minister Benjamin Netanyahu. Despite these developments, Iranian foreign ministry spokesman Esmaeil Baqaei informed state television that while U.S. and Iranian positions had been converging recently, he cautioned that this convergence did not guarantee agreements on key issues. Baqaei also accused the U.S. of issuing "contradictory statements."
Global energy markets have experienced significant price volatility since early March. This volatility followed Iran's threats to target vessels in the Strait of Hormuz in retaliation for U.S. and Israeli attacks. Tehran had also launched attacks against Israel and U.S.-allied states in the Gulf. A ceasefire was established in early April, leading to subsequent peace talks between Washington and Tehran.
Saul Kavonic, head of energy research at MST Financial, commented on the market sentiment, stating, "There is now some light at the end of the tunnel, which will bring some near term oil price relief." However, Kavonic also provided a cautionary outlook, adding, "But even in the most optimistic scenario from here, oil markets will remain tight through 2027 given the time required to normalise oil flows through the Strait, repair damaged oil facilities, and rebuild global oil stocks that have seen record depletion since the war began."
Trading in UK and U.S. energy and financial markets was suspended on Monday due to public holidays.
