Oil Prices Plummet as US, Iran Postpone Strikes

Oil prices plummeted on Monday as the US and Iran put off military strikes for the third consecutive day, sparking hopes of a diplomatic resolution to the conflict. The price drop brought Brent crude futures down by over 6.5% to around $90 per barrel, while WTI crude futures fell by roughly 5.8% to trade near $84.

The recent escalation in tensions had driven oil prices up towards their wartime highs, but President Trump's decision to stand down US military engagement has given the market some breathing room. The attacks on Saudi Arabian crude tankers in the Red Sea by the Iran-backed Yemeni Houthi militant group also appeared to slow over the weekend.

However, traffic through the Bab el-Mandeb Strait remains depressed, averaging 31 vessels per day over the weekend and marking a 50% drop in tonnage terms compared to the second quarter's daily average. The critical chokepoint at the center of the US-Iran war is the Strait of Hormuz, where only 13 crossings were observed over the weekend, roughly 95% below prewar averages.

Analyst Kyle Rodda noted that the hasty rise and fall in oil prices complicates the picture for the Federal Reserve, which is set to announce its July interest rate decision on Wednesday. According to Bank of America economists Claudio Irigoyen and Antonio Gabriel, volatility in oil markets can drive inflation higher, not just high prices.