Oil prices fell by more than 2% in early Asian trade on Monday as traders took profits and markets awaited details of a new U.S. sanctions package against Iran.
At the time of writing, WTI futures were trading at $85.18 per barrel, down 2.16%, while Brent futures were trading at $92.32 per barrel, down 2.19%.
Both benchmarks gained more than 5% last week as the U.S. and Iran continued to trade threats, Iranian crude exports dropped, and tanker traffic through the Strait of Hormuz slowed to a trickle. Today’s pullback appears to be driven primarily by profit-taking from that rally rather than by any significant improvement in the underlying geopolitical picture.
One relative upside for traders to take into account is that there have been no confirmed attacks in the Strait of Hormuz over the past 48 hours. That may be partially due to the significantly reduced flow of tanker traffic, however.
On Sunday, CENTCOM claimed that the U.S. blockade of Iranian ports has so far redirected 70 commercial vessels and disabled three. Meanwhile, Iran is stepping up its own efforts to control traffic through the strait, with the Iranian Persian Gulf Strait Authority publishing a list of dozens of vessels it says violated transit arrangements and warning that they could face future penalties.
The next major catalyst for oil markets will come from U.S. Treasury Secretary Scott Bessent, who is due to hold a press conference at 2 p.m. on Monday to announce new economic measures against Tehran.
Bessent dramatically raised expectations for the announcement over the weekend, writing in the FT, where he described the coming campaign as an “economic D-Day”.
In the piece, the Treasury secretary specifically singled out countries and entities that purchase and transport Iranian petroleum, facilitate Tehran’s financial transactions, and turn a blind eye to seaborne transfers of Iranian fuel.
The U.S. blockade is already impacting Iran’s oil exports, with offers of Iranian crude to Chinese buyers having already declined and prices for available Iranian barrels having risen. If the new announcement successfully deters buyers or intermediaries, the oil market could tighten further.
In response, Mohsen Rezaei, the recently appointed head of Iran’s Supreme National Security Council, has warned that any country’s participation in the U.S. economic campaign will be considered an “act of war.”
As always, the signals coming from Tehran are mixed, with Iranian President Masoud Pezeshkian continuing to defend the MOU reached with Washington in June and describing diplomacy as the best route out of what he called a situation of “neither war nor peace.”
At the same time, Pakistani Army Chief Field Marshal Asim Munir is expected to travel to Tehran on Monday as Islamabad attempts to push the U.S. and Iran toward renewed negotiations.
For now, markets will be focused on exactly what measures are announced by Bessent on Monday and whether they might materially reduce Iranian exports or provoke Tehran into escalating the conflict further.
By Josh Owens for Oilprice.com
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