WEB DESK: Global oil prices dropped sharply by more than 5% on Monday after the United States and Iran suspended military operations over the weekend, raising hopes that diplomatic efforts could reduce tensions and improve the flow of oil through the Strait of Hormuz.
Brent crude futures fell by $5.70 (5.9%) to $91.08 per barrel, briefly dipping below the $90 mark during early trading. Meanwhile, US West Texas Intermediate (WTI) crude declined $4.80 (5.4%) to $84.51 per barrel.
The decline erased part of the gains recorded over the previous three weeks, during which prices had surged amid fears of supply disruptions. Brent had previously climbed to nearly $100 per barrel as conflict in the Middle East disrupted shipping through the Strait of Hormuz and spread to the Red Sea, affecting exports from Saudi Arabia through the Bab el-Mandeb Strait.
According to US Ambassador to the United Nations Mike Waltz, President Donald Trump decided to temporarily suspend military strikes to create an opportunity for diplomatic negotiations.
Despite the market’s positive reaction, analysts warned that the situation remains uncertain. PVM analyst John Evans said that while the pause in hostilities is encouraging, it does not guarantee a quick return to normal oil shipments. He noted that prices are more likely to decline further only if high energy costs weaken global demand rather than because of temporary ceasefires.
Shipping data from Kpler showed that fewer than ten commodity vessels passed through the Strait of Hormuz each day over the weekend, highlighting the continued impact on maritime trade.
MST Marquee analyst Saul Kavonic said any recovery in shipping activity is expected to be gradual, as many operators remain cautious and are waiting for stronger assurances about safety before returning to the route.
Meanwhile, traffic through the Bab el-Mandeb Strait also slowed after Yemen’s Houthi forces reportedly targeted Saudi oil facilities along the Red Sea coast. However, a third Chinese supertanker successfully navigated the route. Analysts at Societe Generale estimate that every month of continued disruption in the Red Sea could increase oil prices by at least $10 per barrel.
Market experts also believe crude prices may remain supported if supply risks continue due to instability in the Middle East and the ongoing war between Russia and Ukraine. Analysts from UOB noted that disruptions involving Red Sea shipping and Ukrainian attacks on Russian energy infrastructure could keep oil prices elevated and add to global inflationary pressures.
Ukraine also reported carrying out strikes on several Russian oil facilities over the weekend, adding another source of uncertainty for global energy markets.
