Crude oil prices plummeted to a three-month low on Monday after an interim agreement between the US and Iran halted hostilities and prompted the lifting of a maritime blockade, clearing the way for the reopening of the critical Strait of Hormuz.
The Brent futures contract declined 5% at $82.93 per barrel, and the West Texas Intermediate futures fell over 5.3% to $80.42/bbl. Both contracts fell to a level not seen since March 10.
The market correction follows an overnight interim diplomatic breakthrough between the US and Iran aimed at halting their conflict.
The downward momentum builds on the previous week's losses, with global benchmarks shedding over 5% as anticipation of the peace talks mounted.
The crux of the bearish market reaction centers on supply relief, driven by a US commitment under the accord to lift its maritime blockade and unconditionally reopen the Strait of Hormuz.
Energy traders are currently positioning for an immediate, near-term supply influx from the Persian Gulf.
About 600 idled vessels, including an estimated 127 fully laden oil tankers, are currently preparing to transit the waterway.
Saxo Bank analysts noted that the market is rapidly pricing in the unlocked supply from these stranded vessels, significantly improving a global supply outlook that had faced extended constraints.
Despite the sharp price retreat, market analysts urge strong caution, emphasizing that physical relief to regional oil production will experience a structural lag.
Analysts said that while dozens of ships can move immediately, a sustained return to pre-crisis output relies on empty vessels returning to the Gulf.
Furthermore, Argus Media noted that reopening the Strait alone is not enough to instantly resume historical commodity flows, as regional shipping activity remains heavily constrained by pending security clearances and damaged energy infrastructure that will take time to restore to full capacity.
Looking ahead, the sustainability of this price correction hinges entirely on upcoming political milestones, with officials scheduled to formally sign the pact in Switzerland this Friday.
SEB analysts pointed out that Brent prices still sit well above their pre-war baseline of roughly $70 per barrel.
With US President Donald Trump warning that hostilities could resume if upcoming nuclear negotiations collapse, any breakdown in the implementation of the peace roadmap could trigger a swift, volatile reversal in the energy markets, analysts warned.