Oil prices fell sharply at the start of the week as a US-Iran ceasefire framework circulated over the weekend held out the prospect of an early reopening of the Strait of Hormuz to commercial shipping. Brent crude futures dropped roughly 5 per cent in early Asian trading on Monday to about $98 a barrel; West Texas Intermediate fell a similar amount to around $91, extending last week’s decline.
The decline takes Brent back to where it traded in mid-March, before Israeli and US strikes on Iranian nuclear and military targets pushed Tehran to mine the strait and triggered the geopolitical risk premium that has weighed on global growth all spring. About a fifth of seaborne oil normally moves through the chokepoint; its closure since April lifted spot freight rates for VLCC tankers by more than 80 per cent.
Refining margins, which had stretched to multi-month highs as the closure pinched physical crude supply, eased in tandem. The benchmark Singapore Mogas 92 crack closed at $11.20 a barrel on Monday, down from $14.50 a fortnight earlier; European diesel cracks slipped about $4 to under $30 a barrel.
Equity markets in Asia drew most of the directional cue from the move. Tokyo’s Topix closed up 0.3 per cent, helped by stronger paper, chemical and shipping names; Korea’s Kospi added 0.6 per cent. The yen and Korean won both firmed against the dollar, and Indian energy importers rallied on hopes of a softer fuel-subsidy bill in the year ahead.
OPEC+ is scheduled to meet in early June, and a successful reopening of the strait will reshape the calculus of that meeting. Saudi Arabia and the UAE have publicly backed the US-Iran framework; analysts at Goldman Sachs said in a note on Monday that the cartel was now more likely to maintain its production targets unchanged than to add a further increment at the meeting.
Risks to the price move remain plain. Trump told negotiators on Sunday not to "rush into" a final deal, and Iranian Foreign Minister Abbas Araghchi accused Washington of "obstructing" the existing text. A breakdown in talks before the strait is physically demined would partially reverse Monday’s decline; commodity desks said implied volatility on Brent options remained well above the levels of early spring.