Oil prices tumbled on Monday after US President Donald Trump said new talks with Iran would begin this week and he had called off a planned attack on the Islamic Republic, according to Bloomberg. Brent for October lost as much as 7.3% in early Asia trade, while West Texas Intermediate traded below $81. The drop followed a month in which futures surged almost a quarter in July — the biggest monthly gain since March.
Risk premium unwinds
Bloomberg reported that Trump said Sunday on Air Force One that he called off a massive attack on Iran after allies in the Middle East, including Saudi Arabia, asked him to pursue a deal instead. The US leader agreed to cancel the assault, "subject to being able to rapidly make a DEAL" to quickly reopen the Strait of Hormuz, according to an earlier post on Truth Social. "Get to work, everybody, and get it DONE."
The drop is a reflection of relief that further escalation has been avoided. The move appears to be largely driven by short covering as the geopolitical risk premium eases. A sustained decline in oil prices is difficult unless there's an agreement that allows shipping through the Strait of Hormuz to return to normal. — Takahiro Asaoka, commodities researcher, Itochu Research Institute Inc.
Asaoka's comments, carried by Bloomberg, frame the sell-off as a removal of the geopolitical premium rather than a change in physical supply fundamentals.
A volatile month
According to Bloomberg, Brent swung through a roughly $32 range last month as fighting resumed following the collapse of a June truce. The conflict spread to the Red Sea and Jordan before another pause in late July to allow diplomatic efforts to continue was shattered.
Shipping risks persist
Despite the pullback, European natural gas fell as much as 6.3% in early Asian trading, Bloomberg reported. Oil futures pared some of their early decline after UK Maritime Trade Operations said a tanker off Oman reported an explosion in close proximity on Sunday.
That highlighted the persistent risks for shipping through Hormuz — which carried about a fifth of the world's crude oil and liquefied natural gas in peacetime — after an LNG vessel was struck by a projectile late last week, according to Bloomberg.
Supply-side responses
- Turkey and Iraq agreed to extend an expired oil pipeline deal by one year, a route able to export as much as 750,000 barrels a day, according to Iraq's Oil Ministry as cited by Bloomberg.
- Iranian Foreign Minister Abbas Araghchi said Sunday on Telegram that negotiations between Iran and Oman are in the final stages. The two countries that flank the strait are discussing a new route through it, but the talks don't cover whether the waterway will be closed or open, a ministry spokesman said on Iranian state-run TV.
- OPEC+ nations approved the latest small increase to their production quotas, a move that will complete the theoretical revival of supplies halted in 2023 and give them scope to add more barrels once the Middle East war ends, Bloomberg reported.
- Kazakhstan's Energy Ministry said the Caspian Pipeline Consortium continues to operate with oil intake at 100,000 tons a day from Aug. 1 after a temporary suspension on Friday. While CPC will allow vessels to load, the pace of exports will also depend on whether tankers are willing to risk the journey, following a series of attacks on tankers loading at or near the Black Sea facility that has disrupted flows from CPC, a major export route for Kazakh crude.
Key market data
| Instrument | Move / Level | Context |
|---|---|---|
| Brent (October) | -7.3% intraday | Early Asia trade |
| West Texas Intermediate | Below $81 | Post-surge session |
| European natural gas | -6.3% | Early Asian trading |
| Brent July monthly range | Roughly $32 | July volatility |
| Brent July monthly gain | Almost a quarter | Biggest monthly gain since March |
Outlook
The near-term direction, according to Bloomberg, hinges on the resumption of US–Iran talks scheduled for Monday and the ability of shipping through the Strait of Hormuz to return to normal. Asaoka underscored that a sustained decline in oil prices is difficult without an agreement that allows normal tanker transits. Meanwhile, the tanker explosion report off Oman on Sunday served as a reminder that the risk premium can re-enter quickly, even as OPEC+ members prepare additional barrels.
Sources:
