Oil prices slid sharply on Monday, falling around 6% to their lowest level in two weeks, as markets reacted to growing optimism that the United States and Iran may be moving closer to a peace deal, despite continued disagreements over key issues including access to the Strait of Hormuz.
Brent crude futures dropped $5.85, or 5.7%, to $97.69 a barrel, while US West Texas Intermediate fell $5.75, or 6%, to $90.85 a barrel. Both benchmarks briefly hit their weakest levels since May 7 during early trading.
The decline followed comments from US President Donald Trump, who said Washington and Tehran had “largely negotiated” an understanding that could reopen the Strait of Hormuz. The waterway is one of the world’s most critical energy routes, typically carrying around a fifth of global oil and liquefied natural gas shipments before the conflict disrupted flows.
Market analysts said the prospect of easing tensions had triggered short-term relief in energy markets. Saul Kavonic of MST Marquee said there appeared to be “some light at the end of the tunnel,” though he warned that risks around implementation remained significant.
Despite the optimism, both sides continue to disagree on core issues. Trump has cautioned that negotiators should not rush into an agreement, pointing to previous rounds of talks that collapsed before reaching a final deal. Analysts at ING also noted that markets may be overreacting, given the history of stalled negotiations between Washington and Tehran.
Energy experts expect that even in a best-case scenario, restoring full oil flows through the Strait of Hormuz would take months. Damaged infrastructure and lingering security concerns are likely to delay a return to normal shipping conditions.
Phillip Nova analyst Priyanka Sachdeva said the longer the crisis continues, the more uncertain the political appetite becomes for a rapid resolution, warning that volatility is likely to persist in global energy markets.
At the same time, US energy producers have responded to elevated prices by increasing activity. Oil and natural gas rigs in the United States rose for a fifth consecutive week, marking the longest streak of gains since early 2025. The rig count increased by seven to 558 in the week ending May 22, reaching its highest level since June, although it remains slightly below the level recorded a year earlier.
The latest data from Baker Hughes showed the overall rig count is still down 1% year-on-year, reflecting continued caution in the sector despite recent price movements.
Analysts said markets are showing early signs of stabilisation after last week’s sharp selloff, but sentiment remains fragile, with traders closely watching diplomatic developments between Washington and Tehran for further direction.
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