Oil prices dropped more than 6% on Monday as the U.S. and Iran halted their military actions following two weeks of hostilities. This pause has sparked optimism for a diplomatic resolution, potentially allowing for the resumption of shipping activities in the Strait of Hormuz.
By 0620 GMT, Brent crude oil futures decreased by $6.20, or 6.4%, settling at $90.58, after dipping below the significant $90 mark earlier in the session.
Meanwhile, U.S. West Texas Intermediate crude oil saw a decline of $5.80, or 6.5%, bringing it to $83.51 per barrel.
Both oil contracts are at their lowest points in nearly a week, following a rise over the past three weeks.
The price of Brent crude hit $100 a barrel previously, mainly due to the conflict disrupting oil shipments through the Strait of Hormuz, which affected exports from Saudi Arabia, the top global oil exporter, especially towards Asia via the Bab el-Mandeb Strait.
U.S. Ambassador to the United Nations Mike Walz shared on “Fox News Sunday” that President Donald Trump opted to pause U.S. strikes to allow more room for diplomatic discussions.
Analysts from ING noted, “Oil prices fell sharply in early trading, as the U.S. and Iran avoided further military actions, marking the first tangible signs of a potential easing of tensions.” They added, “The morning’s movements in oil prices clearly indicate the market’s desire for good news.”
Despite the cessation of hostilities, fewer than 10 supply ships traversed the Strait of Hormuz each day over the weekend, based on Kpler shipping data.
Saul Kabonic, an analyst at MST Marquee, pointed out that “the restoration of shipping flows through the Strait of Hormuz may be gradual and incomplete. Many shippers are still wary and will require more assurance regarding safety before sending empty vessels deeper into the strait.”
A third Chinese supertanker recently departed through the Bab el-Mandeb Strait, though shipping traffic was lessened on Sunday due to attacks by Yemen’s Houthis on Saudi oil facilities near the Red Sea.
However, some analysts believe the market could remain resilient, especially if oil supplies continue to face disruptions from persistent transportation risks in the Middle East alongside the ongoing Russia-Ukraine war.
UOB analysts mentioned, “Oil prices are likely to keep rising as supply disruptions persist, due to the Middle East conflict extending into the Red Sea and Ukrainian drones targeting Russian oil infrastructure, which poses an upward risk to global inflation.”
Over the weekend, Ukraine had announced its attacks on several Russian oil facilities.
