Global oil prices fell sharply on Monday after signs of a slowdown in hostilities between the United States and Iran renewed optimism that negotiations over the Strait of Hormuz could resume, easing concerns over disruptions to global energy supplies.
Brent crude dropped by more than seven per cent during trading, briefly slipping below the $90-per-barrel mark, while US benchmark West Texas Intermediate also recorded steep losses as investors reacted positively to the diplomatic developments.
The decline followed indications that both Washington and Tehran were stepping back from further military escalation after nearly two weeks of exchanges that rattled global energy markets.
US President Donald Trump's administration refrained from launching additional strikes over the weekend, with the US ambassador to the United Nations saying the White House was allowing diplomacy to take its course.
Iran also announced it would suspend retaliatory attacks against neighbouring countries, providing temporary relief for shipping operators and the wider oil industry.
The latest conflict had erupted after Iran targeted vessels navigating Omani waters in the Strait of Hormuz, ending a fragile ceasefire and triggering renewed military exchanges between the two countries. The confrontation later spread beyond the strategic waterway, with Iran-backed Houthi rebels in Yemen launching attacks on Saudi-linked vessels in the Bab al-Mandeb Strait, another critical maritime route linking the Red Sea.
The escalation had pushed crude prices above $100 per barrel last week, the highest level since May, amid fears that disruptions to shipping lanes could tighten global oil supplies.
However, confidence improved after reports that commercial shipping through the Red Sea remained largely uninterrupted and diplomatic contacts resumed.
Iranian Foreign Ministry spokesman Esmaeil Baqaei said discussions with Oman centred on establishing common principles and operational arrangements to ensure the safe movement of vessels through the Strait of Hormuz while respecting the sovereignty of the countries involved.
Media reports also indicated that Pakistan was exploring ways to revive US-Iran peace negotiations following renewed diplomatic efforts reportedly backed by China.
Analysts said the easing geopolitical tensions encouraged traders to unwind risk premiums that had driven oil prices sharply higher in recent weeks.
"It looks as if developments in the Middle East have moved in a positive direction over the weekend, adding some credibility to the notion that oil above $100 a barrel seems to induce de-escalatory behaviour from both sides," National Australia Bank analyst Sally Auld said.
Lower oil prices also reduced fears of renewed inflationary pressure and further interest rate increases, helping lift sentiment across major equity markets.
Asian stock markets closed mostly higher, with Seoul gaining about one per cent as technology heavyweights SK hynix and Samsung attracted renewed investor interest after weeks of heavy selling.
Hong Kong, Shanghai, Sydney, Singapore, Mumbai, Wellington and Manila also ended in positive territory, while London's FTSE 100, Frankfurt's DAX and Paris's CAC 40 all opened higher.
However, markets in Taipei, Bangkok and Jakarta came under pressure, with Indonesian stocks weighed down by the unexpected resignation of central bank governor Perry Warjiyo for personal reasons.
Investor attention is now shifting to a busy week of corporate earnings, with major semiconductor manufacturers SK hynix, Samsung and Japan's Kioxia due to release results. In the United States, technology giants Microsoft, Meta, Apple and Amazon are also scheduled to report, with markets watching closely for updates on artificial intelligence investments and capital expenditure.
Tim Waterer, chief market analyst at KCM Trade, said investors remained cautious about the enormous spending commitments by leading technology companies.
"Traders remain somewhat nervy about the scale of the capex being committed, given lingering concerns over how long the return-on-investment phase may take to fully materialise," he said.
Investors are also awaiting the US Federal Reserve's latest monetary policy decision later this week.
Although expectations for another interest rate increase have strengthened following the Middle East tensions, most economists believe policymakers will keep rates unchanged at Wednesday's meeting.
Jenny Zeng of Allianz Global Investors said the central bank was likely to leave rates on hold for now but could still tighten monetary policy further before the end of the year.
Meanwhile, Chinese memory chipmaker CXMT made a spectacular stock market debut in Shanghai, with its shares surging more than 530 per cent after raising $9.8 billion in what Bloomberg described as the largest technology initial public offering ever completed on mainland China's stock market.
Leave a Reply