Oil prices plunged more than 5% on Monday after the United States and Iran paused military strikes over the weekend, ending two weeks of hostilities. The move fuelled hopes that renewed diplomacy could ease tensions and eventually restore normal shipping through the Strait of Hormuz.
Brent crude futures dropped $5.70, or about 5.9%, to $91.08 per barrel by 0804 GMT, after briefly falling below the key $90 support level earlier in the session.
U.S. West Texas Intermediate (WTI) crude also declined, falling $4.80, or roughly 5.4%, to $84.51 per barrel.
Both benchmarks are now trading at their lowest levels in nearly a week, reversing gains recorded over the past three weeks.
Brent had previously climbed to $100 per barrel as the conflict disrupted oil shipments through the Strait of Hormuz and spread into the Red Sea, affecting exports from Saudi Arabia—the world’s largest oil exporter—via the Bab el-Mandeb Strait to Asia.
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The U.S. ambassador to the United Nations, Mike Waltz, told “Fox News Sunday” and other U.S. media that President Donald Trump had decided to pause U.S. attacks to allow more time for diplomacy.
“The market seems to be forever seeking good news from an arena that really is not providing any,” said PVM analyst John Evans.
“A stay of military strikes might seem an improvement, but it does not come with any guarantees that oil will soon flow from the area… prices will only continue lower if high prices once again dent demand, not questionable mini-ceasefires.”
Shipping data from Kpler showed that fewer than 10 commodity vessels passed through the Strait of Hormuz each day over the weekend.
“Any rebound in flows through the Strait of Hormuz is likely to prove slow and partial, as many shippers remain wary and will want greater confidence in their safety before they bring more empty ships into the Strait,” MST Marquee analyst Saul Kavonic said.
Meanwhile, traffic through the Bab el-Mandeb Strait also declined on Sunday after Yemen’s Houthi rebels attacked Saudi oil facilities along the Red Sea coast, although a third Chinese supertanker successfully exited through the waterway.
Analysts at Societe Generale estimate that every month without a resolution to the Red Sea crisis could add at least $10 per barrel to global oil prices.
Despite Monday’s sharp decline, some analysts believe oil prices could remain supported if supply disruptions persist because of continued shipping risks in the Middle East and Russia’s war in Ukraine.
“As the Middle East conflict widened to the Red Sea and Ukrainian drones struck Russian ships and refineries … sustained (supply) disruption would likely keep oil prices elevated and continue to pose upside risks to global inflation,” UOB analysts said in a note.
Ukraine also reported that it struck several Russian oil facilities over the weekend.
