Oil drops as U.S. says deal with Iran and Hormuz reopening is near

Oil prices have declined as negotiations between the U.S. and Iran progress towards a potential diplomatic agreement. President Donald Trump has indicated that the U.S. blockade of the Strait of Hormuz will remain in effect until an agreement is fully finalized.

The global crude benchmark, Brent, experienced a decline of as much as 5.2%, dropping to $98.12 per barrel, while West Texas Intermediate hovered near $92. In recent social media statements, Trump emphasized that he would not "rush" into an agreement that "isn't even fully negotiated yet." According to senior U.S. officials, final approvals could take several days to materialize.

Significant uncertainties linger regarding how unresolved issues, particularly concerning Iran's nuclear program, will be reconciled. Iran's Tasnim news agency reported that the draft agreement faces challenges, citing U.S. obstructions of critical provisions, including those related to the unfreezing of Iranian assets.

The ongoing crisis has significantly disrupted global energy markets, originating from conflicts that began in February when the U.S. and Israel launched attacks on Iran. This escalation quickly affected the Persian Gulf region, leading to the shutdown of millions of barrels of daily crude supplies. The Strait of Hormuz, which serves as a vital conduit for the region to international markets, has been besieged by blockades imposed by both Tehran and Washington.

A comprehensive reopening of the Strait, which in more stable times facilitates the passage of approximately 20% of the world's oil and liquefied natural gas supplies, would alleviate concerns for energy-importing nations throughout Asia, including China, Japan, and South Korea.

Haris Khurshid, chief investment officer at Chicago-based Karobaar Capital LP, observed, "Much of the oil market had been trading on worst-case assumptions for several weeks. However, as discussions remained ongoing and tensions did not escalate further, a notable portion of that fear premium diminished quickly."

As Trump faces mounting domestic political pressure to resolve the conflict, particularly with the November midterm elections approaching, the situation has driven fuel costs higher, resulting in average U.S. gasoline prices reaching their peak since 2022.

Kevin Hassett, Trump's chief economic adviser at the White House, expressed optimism on Fox News, predicting that energy prices would decline following a successful deal, potentially allowing the Federal Reserve to lower interest rates. "We expect energy prices to plummet as soon as there’s a deal," Hassett stated.

On Monday, trading volumes in the oil market may be reduced due to some traders being away from their desks for public holidays in the U.S. and the UK.