Oil slides as US-Iran pause lifts hopes for diplomacy

LONDON: Oil prices fell sharply on Monday after the United States and Iran held back from further strikes over the weekend, easing immediate fears over crude flows through the Strait of Hormuz.

Brent crude futures were down $5.70, or about 5.9%, at $91.08 a barrel by 0804 GMT, after briefly dropping below $90 earlier in the session. US West Texas Intermediate crude fell $4.80, or roughly 5.4%, to $84.51 a barrel.

Both benchmarks were at their lowest levels in nearly a week after climbing for the previous three weeks. Brent had earlier touched $100 a barrel as the conflict widened to the Red Sea, disrupting shipments through the Strait of Hormuz and hampering Saudi exports to Asia via the Bab el-Mandeb strait.

Mike Waltz, the US ambassador to the United Nations, told Fox News Sunday and other US media that President Donald Trump had chosen to pause US attacks to give diplomacy more time.

Analysts said traders reacted to the possibility of de-escalation, though doubts remain over how quickly disrupted shipping can recover. PVM analyst John Evans said, "The market seems to be forever seeking good news from an arena that really is not providing any." He added, "A stay of military strikes might seem an improvement, but it does not come with any guarantees that oil will soon flow from the area... prices will only continue lower if high prices once again dent demand, not questionable mini-ceasefires."

Shipping through the region remained weak despite the lull in fighting. Kpler data showed fewer than 10 commodity vessels a day moved through the Strait of Hormuz over the weekend.

Saul Kavonic, an analyst at MST Marquee, said, "Any rebound in flows through the Strait of Hormuz is likely to prove slow and partial, as many shippers remain wary and will want greater confidence in their safety before they bring more empty ships into the Strait."

Traffic through the Bab el-Mandeb strait also fell on Sunday after Yemeni Houthis attacked Saudi oil installations on the Red Sea coast, although a third Chinese supertanker still exited through the waterway.

Societe Generale analysts estimated that every month without a settlement in the Red Sea would add at least $10 a barrel to oil prices. UOB analysts said in a note that if supply disruptions persist because of shipping risks in the Middle East and the war in Ukraine, crude could remain supported and continue to pose upside risks to global inflation.

Ukraine said it struck several Russian oil sites over the weekend.