Oil prices fell more than 5 per cent on Monday after the United States and Iran paused military strikes over the weekend, raising hopes that diplomatic efforts could ease the conflict and eventually allow shipping through the Strait of Hormuz to resume.
Brent crude futures fell $5.70, or about 5.9 per cent, to $91.08 a barrel in morning trading after briefly dropping below the key $90 level.
US West Texas Intermediate crude declined $4.80, or around 5.4 per cent, to $84.51 a barrel.
Both benchmarks were trading at their lowest levels in almost a week after rising for three consecutive weeks. Brent had climbed to $100 a barrel as the conflict disrupted oil shipments through the Strait of Hormuz and spread to the Red Sea, affecting Saudi Arabia’s exports to Asia through the Bab el-Mandeb strait.
US Ambassador to the United Nations Mike Waltz told Fox News Sunday and other US media that President Donald Trump had decided to pause US attacks to give diplomatic efforts more time.
However, analysts warned that the pause in military action did not guarantee a quick return to normal shipping activity.
“The market seems to be forever seeking good news from an arena that really is not providing any,” said John Evans, an analyst at PVM.
He said a pause in strikes represented an improvement but did not guarantee that oil would soon begin flowing normally from the region. He added that prices could continue falling if high costs weakened demand.
Fewer than 10 commodity vessels passed through the Strait of Hormuz each day during the weekend, according to shipping data from Kpler.
Saul Kavonic, an analyst at MST Marquee, said any recovery in shipping flows was likely to be slow and partial because operators remained concerned about safety.
Traffic through the Bab el-Mandeb also declined after Houthi forces in Yemen attacked Saudi oil installations along the Red Sea coast. A third Chinese supertanker, however, managed to leave the area through the strategic waterway.
Societe Generale analysts estimate that every month without a resolution to the Red Sea crisis could add at least $10 a barrel to oil prices.
Other analysts said crude markets could remain supported if shipping risks continue to disrupt supplies from the Middle East and the effects of Russia’s war in Ukraine remain significant.
UOB analysts warned that a widening Middle East conflict, combined with Ukrainian attacks on Russian ships and refineries, could result in prolonged supply disruptions, keeping oil prices elevated and increasing risks to global inflation.
Ukraine said it had struck several Russian oil facilities over the weekend, adding to uncertainty in energy markets as traders assessed whether the pause in US-Iran strikes could lead to a lasting reduction in regional tensions.
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