Oil Prices Fall as Trump Hints at US-Iran Peace Deal, Strait of Hormuz Reopening

Oil prices have fallen significantly on the prospect of a deal that could conclude the conflict between the US and Israel with Iran. On Saturday, US President Donald Trump stated that an agreement with Tehran had been "largely negotiated" and further details would be announced shortly, though he subsequently advised his negotiating team against rushing the process.

On Monday morning in Asia, Brent crude, the global oil benchmark, dropped by 5% to $98.36, while US-traded crude saw a 5.3% reduction, settling at $91.50.

President Trump had previously indicated that any forthcoming deal would encompass the reopening of the Strait of Hormuz, without elaborating. This narrow waterway, typically facilitating the transit of approximately one-fifth of the world's oil and liquefied natural gas (LNG), has been largely closed since the conflict commenced on 28 February. The US and Israel initiated wide-ranging strikes on Iran on that date, killing Iran's Supreme Leader and hundreds of civilians, including 110 children at an Iranian primary school.

Trump communicated via social media on Saturday about a "very good call" with leaders from Saudi Arabia, the United Arab Emirates, Qatar, and other nations regarding a "Memorandum of Understanding pertaining to PEACE." He added, "An agreement has been largely negotiated, subject to finalization between the United States of America, the Islamic Republic of Iran, and the various other Countries, as listed." He further noted that "Final aspects and details of the deal are currently being discussed, and will be announced shortly."

The President also mentioned a successful call with Israeli Prime Minister Benjamin Netanyahu. While not providing specific details, Trump reiterated that any agreement would "absolutely" prevent Iran from developing a nuclear weapon. However, on Sunday, he posted on Truth Social: "Both sides must take their time and get it right. There can be no mistakes!"

Esmaeil Baqaei, spokesman for the Iranian foreign ministry, informed state television earlier that US and Iranian positions had been converging over the past week. However, he cautioned that this did not guarantee agreements on fundamental issues and accused the Americans of issuing "contradictory statements."

Global energy markets have experienced considerable price volatility since early March, following Iran's threats to target vessels attempting to use the Strait of Hormuz in retaliation for US and Israeli attacks on the country. Tehran also conducted attacks against Israel and US-allied states in the Gulf, including Saudi Arabia, Bahrain, and the United Arab Emirates. A ceasefire was established in early April, leading to ongoing talks between Washington and Tehran aimed at a long-term peace agreement.

Saul Kavonic, head of energy research at MST Financial, commented, "There is now some light at the end of the tunnel, which will bring some near term oil price relief. But even in the most optimistic scenario from here, oil markets will remain tight through 2027 given the time required to normalise oil flows through the Strait, repair damaged oil facilities, and rebuild global oil stocks that have seen record depletion since the war began."

UK and US energy and financial markets remained closed on Monday due to public holidays.