Oil prices fell more than 5% on Monday after the United States and Iran paused military strikes over the weekend, boosting hopes that renewed diplomacy could ease tensions in the Middle East and restore disrupted energy shipments.
Brent crude futures dropped $5.70, or 5.9%, to $91.08 a barrel by 0804 GMT after briefly falling below the key $90 support level earlier in the session.
US West Texas Intermediate (WTI) crude declined $4.80, or 5.4%, to $84.51 a barrel.
Both benchmark contracts were trading at their lowest levels in nearly a week after climbing steadily over the past three weeks.
Diplomatic hopes weigh on prices
Oil prices had surged to $100 a barrel last week as the conflict between the US and Iran disrupted shipping through the Strait of Hormuz and spilled into the Red Sea, affecting Saudi oil exports via the Bab el-Mandeb Strait.
The decline followed comments by US Ambassador to the United Nations Mike Waltz, who said President Donald Trump had paused military strikes to allow more time for diplomatic efforts.
"The market seems to be forever seeking good news from an arena that really is not providing any," said John Evans, an analyst at PVM.
"A stay of military strikes might seem an improvement, but it does not come with any guarantees that oil will soon flow from the area," he said.
Shipping disruptions persist
Despite the pause in fighting, vessel traffic through the Strait of Hormuz remained significantly below normal levels.
According to shipping data from Kpler, fewer than 10 commodity vessels passed through the strategic waterway each day over the weekend.
MST Marquee analyst Saul Kavonic said shipping activity was unlikely to recover quickly.
"Any rebound in flows through the Strait of Hormuz is likely to prove slow and partial, as many shippers remain wary and will want greater confidence in their safety before they bring more empty ships into the Strait," he said.
Traffic through the Bab el-Mandeb Strait also slowed after Yemen's Houthi movement attacked Saudi oil facilities along the Red Sea coast, although one Chinese supertanker successfully transited the route.
Analysts at Societe Generale estimate that every month without a resolution to the Red Sea crisis could add at least $10 per barrel to global oil prices.
Supply concerns remain
Analysts said oil markets could remain supported if disruptions continue in the Middle East or from Russia's war in Ukraine.
"As the Middle East conflict widened to the Red Sea and Ukrainian drones struck Russian ships and refineries, sustained supply disruption would likely keep oil prices elevated and continue to pose upside risks to global inflation," analysts at UOB said in a research note.
