Oil Falls to Two-Week Low as US-Iran Deal Approaches
Oil prices fell nearly 6% to a two-week low on Monday (May 25th), as optimism grew that the United States and Iran were moving closer to a peace agreement that could reopen the Strait of Hormuz. However, Washington and Tehran both dampened expectations that a final breakthrough would occur anytime soon.
Brent oil fell $6.12, or 5.9%, to $97.42 per barrel at 12:43 p.m. ET (12:43 p.m. ET), while WTI fell $5.72, or 5.9%, to $90.88. Both were at their lowest levels since May 7th. Trading volumes were also thinner due to the Memorial Day holiday in the US.
This sharp correction reflects a reduction in geopolitical risk premiums in energy supply chains. The Strait of Hormuz is a critical route for oil shipments, so any signs of a recovery in shipping flows tend to be quickly interpreted by the market as increased supply expectations and a normalization of risk costs.
An official familiar with the visit said Iran's top negotiator and its foreign minister were in Doha for talks with Qatar's prime minister regarding a potential deal with the US to end the three-month-old war. Both sides stated they had made progress on a memorandum of understanding that would halt the fighting and give negotiations 60 days to reach a final agreement.
However, price direction remains vulnerable to changes in headlines. Price Futures Group analyst Phil Flynn said there is hope that "some oil is starting to move" through the Strait of Hormuz, even though the agreement is not yet finalized. US President Donald Trump also said talks with Iran are going "well," but warned of new attacks if the talks fail.
Going forward, the market will monitor the clarity of the MoU details and implementation steps on the ground regarding shipping access, given oil's sensitivity to supply risks. The primary channels remain energy-based inflation expectations and perceptions of geopolitical risk, which can shift price premiums rapidly, especially when market liquidity returns to normal after the US holiday.
Source: Newsmaker.id
