Trump's Pause May Spark Crude Rebound, But Supply Disruptions Linger
Oil prices plummeted by as much as 7% on Monday after US President Donald Trump postponed an attack on Iran and backed negotiations to reopen the Strait of Hormuz.
Brent crude pared its decline to trade 5.11% lower at $83.44 a barrel, while West Texas Intermediate fell 5.79% to $79.77.
The sell-off may be running ahead of events, as tanker traffic remains subdued and attacks continue, with no agreement guaranteeing safe passage through the strait.
Trump's decision to cancel the strike encouraged traders to remove part of the geopolitical premium embedded in crude, but OPEC+ added to the bearish mood by approving a September production-quota increase of 188,000 barrels a day.
The recent quota rises have delivered little additional oil because exports from the Gulf, Russia, and Kazakhstan remain disrupted by the Iran and Ukraine wars.
JPMorgan estimates that every additional month of interrupted supply could add roughly $7 to $8 a barrel to Brent, while Goldman Sachs has outlined a scenario in which continued Hormuz disruption pushes Brent towards $120.