Oil Prices Plunge Below $100 on Iran Deal Optimism

Oil prices plunged in early Asian trade on Monday following reports over the weekend that a deal to reopen the Strait of Hormuz was in its final stages.

At the time of writing, both oil benchmarks had fallen by more than 5%, with Brent breaking back below $100 to trade at $98.27, while WTI fell to $91.63.

Optimism around a deal was tempered somewhat on Sunday when President Trump posted on social media that he had informed his representatives “not to rush into a deal”. A senior U.S. administration official then added that, while progress had been made, the deal would not be signed on Sunday.

The deal itself would aim to reopen the Strait of Hormuz, end the war, and see Iran give up its enriched uranium. The first stage of the agreement would be a 60-day extension of the ceasefire, during which time traffic would resume through the Strait, and nuclear negotiations would continue.

Iranian news agency Tasnim reported that the number of vessels transiting the Strait could return to pre-war levels within 30 days if an agreement is reached.

The deal would include an end to the war between Israel and Hezbollah, although Israeli Prime Minister Netanyahu emphasized that “any final agreement with Iran must eliminate the nuclear danger”.

Spokesperson for the Iranian Ministry of Foreign Affairs Esmail Baghaei said that while the memorandum of understanding was in its final stages, the details of the nuclear issue are not being discussed at this stage.

While an agreement would provide some much-needed relief to oil markets, it remains to be seen just how quickly oil flows could return to pre-war levels and how long it will take to bring damaged oil and gas infrastructure back online. Even then, without a final agreement that includes a clear understanding of how traffic will flow through the Strait uninterrupted in the future, the geopolitical risk of another major energy crisis would remain.

By Josh Owens for Oilprice.com

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