Oil prices suffered their steepest decline in weeks on Monday, with crude slumping as much as 6% following reports that the United States and Iran have made significant progress toward a peace deal that would reopen the strategic Strait of Hormuz.
Brent crude futures fell $5.85, or 5.7%, to $97.69 per barrel, while US West Texas Intermediate (WTI) dropped $5.75, or 6%, to $90.85 per barrel. Both contracts touched their lowest levels since May 7 during early morning trading, erasing weeks of gains driven by supply concerns.
Hormuz Breakthrough Sparks Selloff
The sharp decline came after former US President Donald Trump announced over the weekend that Washington and Tehran had “largely negotiated” an understanding on a peace deal. Central to the agreement is the reopening of the Strait of Hormuz, a narrow waterway between the Persian Gulf and the Gulf of Oman through which approximately one-fifth of global oil and liquefied natural gas shipments passed before regional tensions escalated.
Market analysts said the prospect of normalised oil flows through the strait directly undercut the supply-risk premium that had kept prices elevated for much of the past year.
Cautious Optimism, Lingering Obstacles
Despite the market’s dramatic reaction, analysts warned that significant hurdles remain. Trump himself struck a cautious note on Sunday, telling reporters he had instructed his representatives not to rush into any final agreement with Iran.
“We’ve been at this stage before, only for talks to break down,” said Warren Patterson, head of commodities strategy at ING, in a note to clients. “Therefore, the market will likely be more cautious about overreacting to headline news.”
A Reuters report quoted other analysts who estimate that even if a deal is finalised, a return to normal oil flows through the strait could take months. Repairing damaged oil and gas facilities—including terminals, storage tanks, and loading equipment—will require significant time and investment.
Nigeria’s Output Struggles Continue
For major oil-producing nations like Nigeria, the price slump arrives at an inopportune moment. Abuja has been struggling to raise its crude production in recent months, hobbled by pipeline theft, underinvestment, and operational challenges.
A sustained drop in global prices would further strain Nigeria’s foreign exchange earnings and government revenue, which remain heavily dependent on oil sales at relatively high price levels.
US Rigs Add for Fifth Straight Week
In a contrasting development, US energy firms have seized on higher domestic energy prices by adding oil and natural gas rigs for the fifth consecutive week. According to the report, this marks the first such streak since February 2025, signalling that American producers are ramping up activity even as geopolitical tensions ease.
That increased US supply could add further downward pressure on prices if the Hormuz situation continues to improve.
What to Watch Next
Investors will now closely monitor official statements from Washington and Tehran in the coming days. Key sticking points remain, including the scope of any sanctions relief, verification mechanisms, and Iran’s broader regional activities.
For now, the market is pricing in a high probability of de-escalation—but as Patterson noted, previous rounds of optimism have collapsed before. Until a signed agreement is in hand, oil traders may remain vulnerable to sharp reversals.
Discussion about this post