Oil prices fell more than 4% on Monday to their lowest levels since March after the United States and Iran reached an initial agreement to end the conflict and restore shipping through the Strait of Hormuz.
Brent crude futures dropped US$3.58, or 4.1%, to US$83.75 a barrel, while US West Texas Intermediate fell US$4.01, or 4.7%, to US$80.87. Both benchmarks had already retreated more than 3% on Friday.
The sharp decline came after US President Donald Trump and Iranian Deputy Foreign Minister Kazem Gharibabadi confirmed a breakthrough, with Pakistani Prime Minister Shehbaz Sharif saying both sides would sign a memorandum of understanding in Switzerland on Friday.
Trump said the Strait of Hormuz would reopen without restrictions and that the US naval blockade of Iranian ports would also end. Iran’s semi-official Mehr news agency reported that the draft agreement calls for shipping through the key waterway to resume within 30 days.
Tim Waterer, chief market analyst at KCM Trade, said the geopolitical risk premium built into oil prices was now being unwound aggressively as traders priced in the prospect of restored crude flows.
The Strait of Hormuz, which handles about a fifth of global oil and liquefied natural gas supplies, has been largely shut for more than three months, removing millions of barrels of oil and gas from the market.
Analysts cautioned that uncertainty remains over how quickly Middle Eastern producers can fully restore exports and how negotiations over Iran’s nuclear programme will unfold during the proposed 60-day ceasefire period.
European powers including the UK, France, Germany and Italy have also indicated they are prepared to lift sanctions on Iran if progress is made on the nuclear issue.
Reuters
