Brent crude sank more than 9% on Monday, dipping below $88 a barrel after the US and Iran paused attacks for a second night running. The drop unwinds last week’s push above $100, but the Strait of Hormuz remains effectively closed. Analysts warn the calm may not hold.
The price of oil sank more than 9% on Monday on hopes that a pause in attacks between the US and Iran could help lead to a resolution of the conflict. Brent crude, the global benchmark, dipped below $88 a barrel, a sharp turnaround from last week, when it had risen above $100.
Second night without strikes
Crude slid after the US ambassador to the UN said attacks on Iran had been halted for a second night in a row to give talks some space. An Iranian army spokesperson said on Sunday that Tehran had halted its retaliatory attacks in the region in response.
The Financial Times put the move at 8%, to $89.10, as talks between mediators continued. Monday’s fall was on course to be the biggest one-day oil price drop since the early April plunge that followed the initial US-Iran ceasefire.
The strait is still shut
The outbreak of the war effectively closed the Strait of Hormuz, a shipping route that usually carries about 20% of the world’s oil and liquefied natural gas. After Iran and the US signed a memorandum of understanding in June to halt military operations and reopen the strait, oil fell back to pre-war levels of around $70 a barrel.
However, the collapse of that ceasefire earlier this month reignited fears over global energy supplies. Crude hit $100 a barrel last week for the first time since May, with added concerns after Houthi militia in Yemen attacked oil tankers in the Red Sea, threatening a key export route that Saudi Arabia had used to bypass the Strait of Hormuz.
Fuel costs still feed through
Susannah Streeter, chief investment strategist at Wealth Club, said markets were remaining “cautious given the twists and turns during this conflict”. Despite the sharp fall in crude, she added, significant uncertainty is still baked into these prices, alongside a reticence about whether negotiations will lead to a lasting breakthrough.
Because of this, the conflict keeps feeding through to fuel costs. Petrol prices across the US now average $4.11 a gallon, according to motor club AAA, up from less than $3 before the conflict began in late February. That rise has driven inflation up to 4.1%, more than double the US Federal Reserve’s 2% goal.
Bets on a Federal Open Market Committee rate rise as soon as Wednesday fell slightly to 34% early on Monday, down from 37% at the Friday close, according to CME Group data.
Sources: BBC News, Financial Times
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