Oil prices moved lower on Monday after the latest round of negotiations between the United States and Iran concluded in Switzerland, raising expectations that additional Iranian crude could eventually return to global markets.
Brent crude dropped $1.68, or 2.09%, to $78.89 per barrel by 06:33 GMT. Earlier in the session, prices had surged to $82.30 as traders reacted to renewed geopolitical tensions, including threats from U.S. President Donald Trump to resume military action against Iran and Tehran’s announcement that it had once again closed the Strait of Hormuz.
U.S. West Texas Intermediate crude for July delivery fell 60 cents to $76 a barrel ahead of the contract’s expiration. The more heavily traded August contract declined 69 cents to $75.16 a barrel. No official settlement took place in U.S. markets on Friday because of a public holiday.
Negotiations Boost Confidence in Future Supply
The market weakened after Iranian officials reported progress in the talks.
Iranian Foreign Minister Abbas Araqchi said Tehran had secured waivers covering oil and petrochemical exports, access to frozen assets and the launch of a reconstruction and development programme.
“The decline has been driven primarily by improving prospects for a diplomatic breakthrough between the United States and Iran … reviving hopes that sanctions on Iran could eventually be eased,” said Sugandha Sachdeva, founder of SS WealthStreet.
According to Sachdeva, any easing of restrictions could significantly alter global supply dynamics.
“Such a development would allow nearly 1.5 million barrels per day of Iranian crude to return to international markets, significantly improving global supply availability at a time when demand growth remains moderate,” she said.
Fragile Ceasefire Supports Dialogue
Mediators confirmed that senior U.S. and Iranian officials completed their first round of discussions in Switzerland.
The talks were held under the framework of an agreement reached last week to extend the fragile ceasefire established in April for at least another 60 days.
Although negotiators described the discussions as constructive, investors remain alert to the possibility of setbacks given the complexity of the negotiations.
Strait of Hormuz and Regional Tensions Remain in Focus
Before the talks concluded, shipping activity through the Strait of Hormuz declined sharply after Iran announced a renewed closure of the strategic route, accusing Israel and the United States of violating the interim peace arrangement.
At the same time, regional tensions remained elevated. Lebanon’s state news agency reported that Israeli strikes killed at least 20 people on Saturday, despite a ceasefire agreement with Hezbollah that had come into force one day earlier.
“Recent developments show that moving towards a more permanent deal will be challenging, with very real risks of a flare-up in hostilities during the 60-day ceasefire,” ING analysts said in a note.
Additional Supply Prospects Pressure the Market
Despite ongoing geopolitical risks, crude prices fell more than 8% last week as traders increasingly focused on the prospect of greater supply.
Expectations have been supported by the release of oil cargoes previously delayed in the Gulf and the possibility that sanctions on Iranian oil exports could be relaxed under a future agreement.
Hamid Bovard, head of the National Iranian Oil Company, said more than 25 million barrels of Iranian crude had crossed the virtual blockade line since Monday.
Additional supply is also expected from neighbouring producers. The United Arab Emirates, Kuwait and Iraq have all increased oil offerings in recent days.
Iraq’s deputy oil minister for upstream affairs said the country intends to gradually raise production to between 4.2 million and 4.3 million barrels per day.
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