Oil prices slide as US-Iran tensions ease and hopes grow for Hormuz reopening.
Oil prices fell sharply on Monday, with both US crude and Brent crude sliding nearly 5% as markets responded to renewed optimism over a potential US-Iran diplomatic breakthrough and the possibility of the Strait of Hormuz reopening.
As of 10:17am Tokyo time, West Texas Intermediate (WTI) crude was trading at $80.52 a barrel, down $4.15, or 4.90%, while Brent crude stood at $83.85 a barrel, down $4.08, or 4.64%, according to market data.
The decline followed US President Donald Trump’s decision to call off a planned military strike on Iran, while signalling that Washington would seek a nuclear agreement that could pave the way for the reopening of the Strait of Hormuz.
The market move marks a sharp reversal from the oil surge seen in recent weeks, when rising US-Iran tensions, attacks on shipping and disruptions across the Gulf region pushed crude prices higher.
Why oil is falling despite the blockade
Investors are increasingly betting that the latest escalation could be resolved through diplomacy rather than turning into a prolonged disruption to Middle Eastern oil supplies.
Markets are responding to signs that tensions may ease, with traders focusing on the possibility of a deal that could restore shipping through the Strait of Hormuz and reduce supply concerns.
Reuters reported that US President Donald Trump said Middle Eastern countries, including Iran, had requested additional time to finalise an agreement focused on reopening Hormuz and addressing Iran’s nuclear programme.
Strait of Hormuz remains key risk
The Strait of Hormuz remains the main pressure point for global energy markets. Around one-fifth of the world’s seaborne oil, petroleum products and LNG supplies typically pass through the strategic chokepoint, meaning any prolonged disruption could have significant consequences for global energy prices.
However, the latest market movement suggests traders are focusing more on the possibility of de-escalation than on the immediate impact of shipping disruptions.
35 ships turn back
The latest developments come as a US naval blockade of Iranian ports continues to affect commercial shipping activity.
According to a report citing the ongoing US Central Command operation, 35 ships have been forced to turn back amid the blockade.
Blockade impact on oil markets
The blockade is focused on shipping to and from Iranian ports rather than a complete closure of the Strait of Hormuz.
Earlier in the conflict, US forces intercepted and redirected commercial vessels attempting to enter or leave Iranian ports.
That distinction is significant for oil markets: while a blockade of Iranian ports could hurt Iran’s exports, it does not necessarily mean that all oil shipments passing through the Strait of Hormuz are being halted.
Oil’s geopolitical premium fades
The sharp decline in crude prices indicates that some of the geopolitical risk premium built into oil prices over recent weeks is now being reversed, as traders reassess the likelihood of a prolonged supply disruption.
Reuters reported that Brent and WTI crude prices had risen more than 20% over the previous month as attacks and shipping disruptions in the Gulf fuelled concerns over a prolonged supply shock.
If traffic through the Strait of Hormuz gradually returns to normal, traders could see additional Iranian and Gulf crude supplies re-enter the global market, easing fears of a severe supply shortage.
However, the downside risks remain. The oil sell-off could quickly reverse if diplomatic efforts fail or attacks on shipping resume. Reuters reported that three additional maritime incidents have been recorded since Saturday, highlighting the fragile nature of the situation.
OPEC+ adds another bearish factor
Supply expectations are also putting pressure on oil prices, adding another bearish factor to the market outlook.
The OPEC+ alliance has approved an increase of about 188,000 barrels per day from September, although the actual rise in available supply could be limited by ongoing disruptions in the Gulf and other regions.
The prospect of additional Gulf supplies returning to the market, combined with higher OPEC+ output and easing concerns over an immediate US-Iran escalation, is strengthening the bearish case for oil prices.
Not all crude prices are falling
The market move has not been uniform across all crude benchmarks.
The latest data shows a notable divergence, with Murban crude, the Abu Dhabi benchmark, trading at $85.49 a barrel, up $1.06, or 1.26%.
The divergence highlights the unusual fragmentation in the physical oil market caused by the conflict.
While global benchmark futures are declining on expectations of a potential de-escalation, regional crude grades can continue to reflect actual supply availability, shipping restrictions, location-specific risks and refinery demand.
Natural gas prices also moved higher, with the benchmark trading at $2.765, up 0.018, or 0.66%.
