Oil prices fell to their lowest levels since March on Monday after U.S. President Donald Trump and Iranian Deputy Foreign Minister Kazem Gharibabadi said the two countries had reached a preliminary agreement to end the war and restore navigation through the Strait of Hormuz.
Brent crude futures fell by $3.58, or 4.10%, to $83.75 per barrel by 00:04 GMT. U.S. West Texas Intermediate (WTI) crude also declined by $4.01, or 4.72%, to $80.87 per barrel.
Both benchmark contracts had already fallen by more than 3% on Friday.
Pakistani Prime Minister Shehbaz Sharif, whose country has served as a mediator, said that the United States and Iran are expected to sign a memorandum of understanding in Switzerland on Friday.
Trump stated on Sunday that the Strait of Hormuz would be reopened “without any fees” and that the U.S. naval blockade of Iranian ports would also come to an end.
Iran’s semi-official Mehr News Agency reported that the draft agreement provides for the reopening of the Strait of Hormuz within 30 days under arrangements coordinated by Iran.
Tim Waterer, Chief Market Analyst at KCM Trade, said that the geopolitical risk premium embedded in crude oil prices is being unwound rapidly as traders anticipate the resumption of oil flows.
The closure of the Strait of Hormuz for more than three months during the conflict deprived global markets of millions of barrels of oil and gas supplies. Before the war, the strategic waterway handled approximately one-fifth of the world’s oil and liquefied natural gas shipments.
Investors are also closely monitoring the pace at which oil production and exports from Middle Eastern producers will recover following war-related disruptions, as well as whether additional shipping traffic will return to the region.
Gharibabadi said that a broader agreement would be negotiated during a 60-day ceasefire period.
Meanwhile, United Kingdom, France, Germany, and Italy said on Sunday that they are prepared to lift sanctions on Iran in exchange for steps by Tehran regarding its nuclear program.
(Reuters)
