Oil prices dropped sharply on Monday after signs of easing tensions between the United States and Iran triggered a broad market sell-off.
The decline erased much of the geopolitical risk premium that had pushed Brent crude briefly to $100 per barrel during the previous week.
By 02:11 ET, or 06:11 GMT, Brent oil futures had fallen 6% to $90.93 per barrel. Prices briefly slipped below $90 earlier in the session.
West Texas Intermediate crude futures declined 6.1% to $83.83 per barrel.
Diplomatic Hopes Weigh on Oil Prices
Brent crude reached $100 per barrel last week after the conflict expanded beyond the Strait of Hormuz and into the Red Sea.
The escalation raised concerns about possible disruptions to Middle Eastern oil exports and major international shipping routes.
However, prices reversed course after Washington paused its bombing campaign following 13 consecutive nights of strikes. U.S. officials said the halt would allow additional time for diplomatic efforts.
Iran Responds to U.S. Military Pause
Iran also signalled that it would suspend retaliatory attacks while the U.S. pause remained in place, according to an Iranian official cited by Reuters.
Nevertheless, both sides have warned that military action could resume if negotiations fail.
The temporary pause represents the clearest indication so far that the conflict may be moving toward de-escalation.
China Reportedly Pushes for Renewed Talks
Investors were also encouraged by reports that China was attempting to restart stalled negotiations between Washington and Tehran.
The diplomatic effort raised hopes that the conflict could return to talks after several weeks of intensifying military action.
ING analysts said the sharp decline in oil prices showed how quickly traders were willing to remove the war-related premium following any evidence of easing tensions.
ING Warns That Risks Remain
Although the pause in attacks marked an important development, ING cautioned that uncertainty remains high.
The bank noted that Washington had offered limited explanation for suspending the bombing campaign.
As a result, analysts believe it is still too early to determine whether the conflict has entered a lasting period of de-escalation.
Shipping Disruptions Continue
Despite the reduction in military activity, shipping conditions across the region remain challenging.
Fewer commodity vessels travelled through the Strait of Hormuz over the weekend. Traffic through the Bab el-Mandeb Strait also slowed following Houthi attacks on Saudi oil facilities.
These disruptions continue to create risks for global energy supplies.
Alternative Supply Measures Ease Pressure
ANZ said the market has so far managed the disruptions through several temporary measures.
These include lower Chinese crude oil imports, releases from emergency reserves and alternative Saudi export routes that avoid the Strait of Hormuz.
However, the bank warned that these protections are becoming increasingly limited.
Strategic reserves are falling, commercial inventories are tightening and shipping risks remain elevated across both the Strait of Hormuz and the Bab el-Mandeb Strait.
Oil Market Remains Vulnerable
The recent decline shows that oil prices remain highly sensitive to geopolitical developments.
A lasting diplomatic agreement could remove more of the war premium and place further pressure on crude prices.
However, renewed military action or additional supply disruptions could quickly reverse the sell-off and push oil prices higher again.
