Oil prices declined sharply in early Asian trading on Monday after US President Donald Trump halted plans for further military strikes on Iran, raising expectations that diplomatic efforts could help reopen the Strait of Hormuz and prevent a wider regional conflict.
West Texas Intermediate (WTI) futures were trading at $79.77 per barrel, down 5.88%, while Brent crude futures declined to $83.47 per barrel, falling 5.07%.
The latest decline follows a highly volatile July, during which both major crude benchmarks gained more than 20%.
Rising tensions between the United States and Iran, along with Houthi attacks and concerns over disruptions to Saudi shipping routes, had increased fears of prolonged supply problems through the Strait of Hormuz and the Red Sea.
Concerns intensified over the weekend after Trump warned that the US was preparing a major military strike against Iran.
However, he later called off the planned action, stating that regional leaders had indicated a possible agreement was close.
Markets reacted positively to the possibility of reduced tensions, leading to a sharp drop in crude prices when trading began on Monday. However, analysts noted that it remains uncertain whether the latest diplomatic efforts will result in a lasting resolution.
Shipping developments also influenced market sentiment. Two Saudi oil tankers successfully passed through the Bab el-Mandeb Strait over the weekend, suggesting that some shipping activity remains operational.
However, the UK Maritime Trade Operations agency reported three additional tanker attacks since Saturday, indicating that security risks in the region remain significant.
Adding further pressure on prices, OPEC+ approved an increase in production quotas of around 188,000 barrels per day for September.
The move completes another stage of reversing voluntary production cuts. However, its immediate impact is limited as actual production increases remain affected by regional disruptions.
Diplomatic efforts are also continuing from Iran’s side. Iranian officials said negotiations with Oman over a new shipping arrangement through the Strait of Hormuz are nearing completion.
Tehran has indicated that future shipping routes may differ from previous arrangements, even if the strait is reopened.
If regional negotiations progress and shipping activity normalises, the geopolitical risk premium built into oil prices during July could continue to decline.
However, any fresh military escalation or disruption to Gulf oil exports could quickly push crude prices higher again.
