Crude oil prices experienced a sharp decline on Monday, falling over 4% to hit two-week lows as reports emerged of the US and Iran reaching a broad framework to end their over two-month-long conflict. Brent crude futures dropped below the $100 per barrel mark, declining $4.80, or 4.79% to $95.41 per barrel, while West Texas Intermediate crude plunged $5.07, or 5.25% to $91.53 per barrel on the NYMEX. On the Multi Commodity Exchange (MCX), crude oil for June delivery plunged by ₹412, or 4.49% to ₹8,756 per barrel in a business turnover of 13,313 lots. Both contracts touched their lowest levels since May 7 earlier in the session. According to The Hindu BusinessLine, this represents a significant retreat from the elevated levels seen in recent weeks, with a chunk of the fear premium coming out pretty fast as traders reassess the situation. As per Karobaar Capital LP's Haris Khurshid, 'A lot of oil was trading on worst case assumptions for weeks, but once it became clear talks were still alive and escalation wasn't accelerating, a chunk of that fear premium comes out pretty fast.'
According to reports, Iran and the United States have reached a broad framework to end their over two-month-long conflict, though a potential memorandum of understanding does not yet specify arrangements related to the management of the Strait of Hormuz. The proposed framework reportedly includes reopening the Strait of Hormuz, a key global shipping route through which nearly one-fifth of the world's oil passes. However, as reported by The Hindu BusinessLine, analysts cautioned that a final agreement between Tehran and Washington cannot yet be considered imminent. Senior US officials stated that any final deal may take days, while US President Donald Trump stated that the US blockade of the Strait of Hormuz will remain in place till a proper deal is signed and put in place. The mixed signals from both sides added to uncertainty in global energy markets, leaving traders unclear about whether diplomatic negotiations were moving any closer to a final agreement.
Global crude oil prices tumbled to their lowest levels in two weeks on Monday amid optimism over potential progress in US-Iran negotiations, easing fears of prolonged supply disruptions in West Asia. International oil benchmark Brent crude fell 6 per cent to trade below the $100-per-barrel mark, while US West Texas Intermediate (WTI) crude declined more than 6 per cent to $90.33 during early trade. From May 4 to May 25, the benchmark declined by nearly 15 per cent from its peak of $115 per barrel earlier this month. Brent crude had jumped to a peak of $115 per barrel earlier this month as markets priced in supply risks and tightening global inventories. The decline in oil prices came after US President Donald Trump indicated that Washington and Tehran had made significant progress towards a possible peace understanding aimed at easing tensions in the region and reopening the Strait of Hormuz.
The Strait of Hormuz has remained largely shut to tanker traffic for weeks, pushing oil prices sharply higher and intensifying fears of another inflationary shock globally. In return, the US is expected to lift its naval blockade on Iranian ports under the proposed deal, as reported by The Hindu BusinessLine. However, analysts warned that even if a peace agreement is reached soon, restoring normal oil flows through the waterway could take several months and energy prices may not immediately return to pre-war levels. Despite the optimism around peace deal progress, analysts expect that it will take months for oil flows through the strait to return to normal and for damaged oil and gas facilities to be repaired, as reported by Business Standard. More than 11 million barrels per day of Gulf crude and condensate production is currently curtailed, with over 80 million tonnes per annum of LNG supply affected, which forms 20% of global supply. The Strait of Hormuz -- one of the world's most strategically important energy routes -- previously carried around one-fifth of global oil and liquefied natural gas shipments before the conflict disrupted supplies earlier this year.
The sharp correction in crude prices also lifted sentiment in global equity markets, with stocks across Europe and Asia advancing on hopes that easing energy prices could help cool inflationary pressures and reduce risks to global economic growth. Gold prices were trading higher during Monday's market, India time, due to a subdued demand for the US dollar on high hopes of a potential peace deal between the United States and Iran this week. At 9:46 pm (ET), COMEX gold prices were trading 0.94% higher at $4,565.50 per ounce in the United States on Sunday evening, compared with $4,523.20 per ounce at the previous commodity market close. Data collected from the Bloomberg US Dollar spot index (DYX) showed that the greenback was trading 0.24% lower at 99 as of 9:48 pm (ET), compared to the previous currency market close. Traders are likely to purchase more of the precious metal gold on a lower US dollar rate as they will be able to purchase a higher quantity at a lower price, with the precious metal benefiting from the reduced geopolitical tensions. Analysts noted that crude prices have slipped below the $100-per-barrel mark on expectations of a possible US-Iran deal, which, if sustained, could emerge as a turning point for global markets.
