Key Points
- Traders trim geopolitical risk premium
- Strait of Hormuz concerns persist
ISLAMABAD: Oil prices eased on Monday after Iran said contacts with the United States were continuing through mediators, prompting traders to scale back some of the gains driven by fears of a wider Middle East conflict.
Brent crude, the international benchmark, fell about 2 per cent from an intraday peak above $91 per barrel to trade near $89, while retreating from its highest level in more than a month.
US West Texas Intermediate (WTI) crude also slipped from above $84 per barrel to around $83 as investors responded to signs that diplomatic channels between Tehran and Washington remained open.
The decline came after Iranian officials indicated that indirect communications with the United States were continuing through regional mediators despite the latest escalation in tensions.
The remarks helped ease immediate concerns that the conflict could spiral into a full-blown confrontation detrimental to oil supplies from the Middle East.
Even with Monday’s pullback, crude prices remained significantly higher than levels seen earlier this month. Analysts said traders were balancing the prospect of diplomacy against the risk of further military action that could threaten energy infrastructure or shipping routes in the region.
Oil market’s primary focus
The market’s primary focus remains the Strait of Hormuz, a strategic waterway through which roughly a fifth of the world’s oil supply passes. Any disruption to tanker traffic through the strait could tighten global supplies and push prices sharply higher.
Oil has experienced extreme volatility since the conflict between the United States and Iran erupted on February 28.
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Brent crude traded near $68 per barrel in early February before surging above $92 in March as fears of supply disruptions intensified. Prices later climbed beyond $110 during the height of concerns over the security of shipping lanes in the Arabian Gulf.
The rally proved short-lived as ceasefire efforts and diplomatic initiatives reduced fears of a prolonged disruption to global energy supplies.
Brent subsequently fell to the low-$70 range earlier this month as investors grew more optimistic about a negotiated settlement between Washington and Tehran.
The latest flare-up in hostilities reversed that trend, driving Brent back above $90 per barrel and restoring a substantial geopolitical risk premium to oil markets.
Monday’s comments from Iran, however, encouraged traders to take profits and reassess the likelihood of an immediate supply shock.
Market analysts cautioned that the easing in prices should not be interpreted as a sign that tensions have subsided.
The continuation of indirect contacts does not guarantee progress toward a settlement, and investors remain alert to developments involving sanctions, military activity and maritime security in the region.
With oil markets remaining highly sensitive to political and military developments, traders are expected to closely monitor further statements from Washington, Tehran and regional mediators in the coming days.
Any indication of progress in diplomatic efforts could weigh on prices, whereas renewed threats to energy infrastructure or shipping routes could quickly reignite the rally.
