Oil prices dropped by nearly 2% on Monday as diplomatic efforts to ease tensions between the United States and Iran raised hopes of reduced disruptions to global energy supplies, reversing part of last week’s rally.
Brent crude futures fell by $2.21, or 1.89%, to $114.51 per barrel, while US West Texas Intermediate (WTI) crude declined by $2.23, or 2.16%, to $101.04 per barrel as of 0426 GMT.
The decline followed a strong performance last week, when concerns over escalating hostilities in the Middle East pushed prices towards six-month highs. Brent gained 6% over the week, while WTI advanced 2.3%, with both benchmarks settling nearly $3 higher on Friday after Houthi attacks in Saudi Arabia heightened fears of supply disruptions.
Market sentiment improved after Qatari mediators travelled to Tehran on Sunday as part of efforts to reduce regional tensions in coordination with Washington.
However, analysts cautioned that the diplomatic initiative might offer only temporary relief, given the continuing risk of renewed military action and attacks on energy infrastructure.
Vandana Hari, founder of oil market analysis firm Vanda Insights, said concerns about a fresh escalation in the Middle East, which had driven much of the previous week’s rally, had eased.
She warned, however, that the reprieve could be short-lived, noting that US President Donald Trump had not ruled out the possibility of strikes against Iran after the November 3 midterm elections.
“We therefore expect volatility to remain elevated, with risks still skewed to the upside,” Hari said.
The diplomatic efforts have also coincided with continued hostilities. Iran-backed Houthi rebels said they attacked an airport and oil facilities in Saudi Arabia on Saturday, while Saudi authorities reported intercepting additional missiles and drones on Sunday.
The conflict, which began with the US-Israeli war against Iran on February 28, has disrupted commercial shipping and intensified concerns about the security of critical energy transportation routes.
In particular, uncertainty surrounding traffic through the Strait of Hormuz and the Bab el-Mandeb Strait has added to concerns over the movement of crude oil and other energy supplies.
While the latest diplomatic contacts have eased immediate fears of further escalation, the persistence of attacks and uncertainty over Washington’s next moves continue to expose the oil market to sharp price swings.
