Oil prices fell more than 6% on Monday after the United States and Iran paused their strikes over the weekend following two weeks of attacks, raising hopes of a diplomatic breakthrough that could ease the conflict and allow shipping to resume through the Strait of Hormuz.
Brent crude futures dropped $6.20, or 6.4%, to $90.58 a barrel by 6.20am GMT, having briefly slipped below the key $90 support level earlier in the session. US West Texas Intermediate crude stood at $83.51 a barrel, down $5.80, or 6.5%. Both benchmarks were trading at their lowest levels in nearly a week, after three consecutive weeks of gains.
Brent had reached $100 a barrel as the conflict, which had already reduced oil shipments through the Strait of Hormuz, spread to the Red Sea, hampering exports from the world's top exporter, Saudi Arabia, via the Bab el-Mandeb strait to Asia.
US ambassador to the United Nations Mike Waltz told American media on Sunday that President Trump had decided to pause US attacks to give diplomacy more room.
"Desperation for positive news"
ING analysts said in a client note that the morning's oil price action "clearly reflects the market's desperation for positive news," as the pause in military action offered the first tangible signs of a possible de-escalation.
Despite the pause in attacks, fewer than 10 commodity vessels passed through the Strait of Hormuz daily over the weekend, according to shipping data from Kpler. MST Marquee analyst Saul Kavonic said any rebound in flows through the strait is likely to be slow and partial, since many shippers remain cautious and will want greater confidence in safety before sending more empty ships back into the strait.
Ship traffic through the Bab el-Mandeb strait also fell on Sunday, after Yemen's Houthis attacked Saudi oil installations along the Red Sea coast, though a third Chinese supertanker exited via the strait.
Risks remain
Even so, some analysts still expect the market to find support if crude supplies remain affected by ongoing shipping risks in the Middle East and by the war in Ukraine. Analysts at UOB warned that with the Middle East conflict having widened to the Red Sea, and Ukrainian drones striking Russian ships and refineries, sustained supply disruption would likely keep oil prices elevated and "continue to pose upside risks to global inflation."
Source: Reuters
