As the U.S. and Iran stopped their attacks after two weeks of escalation that had pushed Brent above $100, oil prices fell more than 5% in early Asian trading on Monday.
At the time of writing, Brent crude had dropped to $91.80, down 5.15%, while WTI crude was trading at $84.47, down 5.39%.
The withdrawal followed Washington’s Friday announcement that it would temporarily stop its bombing campaign against Iran. U.S. Ambassador to the UN Mike Waltz stated that the halt was “giving diplomacy some space” in an interview with Face the Nation on Sunday, but he also mentioned that more military resources were entering the area in case diplomacy failed.
Esmaeil Baghaei, a spokesman for Iran’s foreign ministry, stated that discussions with the Omani team on Friday and Saturday were “constructive” and that some progress had been achieved, indicating that Iran will likewise halt strikes. Iran’s stance is “attack for attack,” according to an Iranian official who spoke to Reuters on condition of anonymity, implying that it will stop activities for as long as the United States does.
After weeks of unrelenting purchasing, the halt was sufficient to cause an aggressive wave of profit-taking for the oil markets, but any prolonged downward pressure will necessitate a large increase in tanker traffic.
Tankers will ultimately continue to suffer the same operational risks that caused freight costs to skyrocket over the previous two weeks unless a long-term deal is struck.
The fact that the most recent U.S. bombing campaign had mostly depleted its initial target list while using substantial amounts of bombs and interceptors was one of the external variables that contributed to the end of the most recent round of bombings.
With the midterm elections just 100 days away and the average price of petrol in the United States rising beyond $4 a gallon, domestic political worries for President Trump will also have contributed to the stop.
The upcoming days in oil markets will probably be characterised by volatility for traders due to news from Tehran and Washington. Shipping in the Red Sea and the Strait of Hormuz will need time and trust to recover, even though part of the immediate risk premium has been eliminated.
