Oil prices tumbled more than 5% on Monday after the United States and Iran paused military strikes over the weekend, raising hopes of a diplomatic resolution that could ease supply disruptions in the Middle East.
Brent crude futures fell US$4.89, or 5.05%, to US$91.89 a barrel after briefly dropping below the key US$90 support level during early trading. US West Texas Intermediate (WTI) crude declined US$4.67, or 5.23%, to US$84.64 a barrel.
Both benchmarks were trading at their lowest levels in nearly a week after climbing over the past three weeks as tensions in the Middle East disrupted oil shipments.
Brent had surged to US$100 a barrel after the conflict reduced crude exports through the Strait of Hormuz and spilled into the Red Sea, disrupting shipments from Saudi Arabia via the Bab el-Mandeb Strait.
The latest decline followed comments by US ambassador to the United Nations Mike Waltz, who said President Donald Trump had decided to pause US attacks to allow more time for diplomacy.
IG market analyst Tony Sycamore said expectations for a diplomatic breakthrough had improved.
“Hopes are rising that a genuine diplomatic path may be opening.”
“A return to the 14-point MOU (memorandum of understanding) with a little more clarity around control of the Strait of Hormuz would be a solid starting point.”
Despite the pause in hostilities, shipping activity remained subdued. Data from Kpler showed fewer than 10 commodity vessels transited the Strait of Hormuz each day over the weekend.
Traffic through the Bab el-Mandeb Strait also slowed after Yemen’s Houthi forces attacked Saudi oil installations along the Red Sea coast, although a third Chinese supertanker successfully exited through the route.
MST Marquee analyst Saul Kavonic said shipping activity was unlikely to recover quickly despite the easing in military action.
“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.”
