Oil Prices Plummet as US and Iran Pause Military Strikes

Oil prices plummeted over 5% on Monday after the US and Iran paused military strikes over the weekend, sparking hopes of a diplomatic solution to de-escalate the conflict in the Strait of Hormuz. Brent crude futures fell $5.70, or around 5.9%, to $91.08 a barrel, while U.S. West Texas Intermediate crude was at $84.51 a barrel, down $4.80, or around 5.4%. Both contracts are trading at their lowest levels in nearly a week after rising for the past three weeks.

The US ambassador to the United Nations, Mike Waltz, announced that President Donald Trump had decided to pause US attacks to allow more time for diplomacy. However, analysts remain cautious, with PVM analyst John Evans stating that 'the market seems to be forever seeking good news from an arena that really is not providing any.' A stay of military strikes may seem like a positive development, but it does not guarantee the resumption of oil shipments through the Strait of Hormuz.

Shipping data from Kpler shows that fewer than 10 commodity vessels passed through the Strait of Hormuz daily during the weekend. Analysts expect any rebound in flows to be slow and partial, as many shippers remain wary of the safety risks in the area. Societe Generale analysts estimate that each month without a resolution in the Red Sea would add at least $10 a barrel to the oil price.

Some analysts predict that markets will remain supported if crude supplies continue to be disrupted by ongoing shipping risks in the Middle East and Russia's war on Ukraine. UOB analysts noted that sustained supply disruption would likely keep oil prices elevated and pose upside risks to global inflation.