Oil prices sank after the US and Iran agreed to an interim deal to end their months-long war, clearing the way for the Strait of Hormuz to reopen and for the easing of the supply crunch that has gripped global energy markets since February.
Brent crude tumbled 4.7 per cent to $83.22 a barrel as of 8.03am, in Dubai, after closing last week at a three-month low. West Texas Intermediate fell 5.2 per cent to $80.51.
US President Donald Trump said in social-media posts he was authorising the "toll-free opening" of the Strait of Hormuz and ending a blockade of the Islamic Republic's ports. The vital waterway is to reopen once the deal is signed on Friday in Switzerland.
The breakthrough was first announced by Pakistani Prime Minister Shehbaz Sharif, who said both sides had declared an immediate and permanent end to military operations on all fronts, including in Lebanon, with a signing ceremony set for June 19 in Switzerland. He credited efforts by Qatar, Saudi Arabia, Egypt and Turkey, and said mediators would convene a series of pre-implementation meetings this week ahead of the technical talks and signing.
The agreement promises to dismantle a geopolitical premium that has roiled crude since late February, when the US and Israel first struck Iran to curb its nuclear programme. Tehran's response included effectively closing the Strait of Hormuz, which in peacetime carries about a fifth of global oil flows. The move prompted a retaliatory US blockade of Tehran's ports.
Still, traders and analysts struck a cautious note on Monday, pointing to the absence of fine-print detail, the hurdles facing shippers seeking to restart transits, and a drawn-out timeline for fields to resume pumping. Iranian Deputy Foreign Minister Kazem Gharibabadi confirmed an agreement was reached but said the text would be released only after the signing.
"We still need to understand what the deal means," said Chris Weston, head of research at Pepperstone Group. "Even with the strait slated to open on Friday, there could be mines still, and insurance providers could be charging high rates."
Prices had already surrendered much of their war-time surge in recent weeks. Signals of an imminent deal alongside resumed flows through the strait, releases from emergency reserves and scaled-back buying by importers including China dragged crude lower.
The shift showed up in market structures. Brent's prompt spread narrowed to less than $1 a barrel in backwardation, down from more than $12 in April.
Challenges remain
Many obstacles remain before traffic through the strait fully resumes, including the clearing of mines and clarity over Tehran's push for greater control of passing vessels.
Producers have warned that restoring shut-in Gulf output in full could take months, given infrastructure damage and technical challenges, while strategic and commercial stockpiles will need replenishing after drawing at a record pace.
"The structural gaps left from this war will take time to fill," Mr Weston said.
Beyond oil, equities rallied as risk appetite returned, with S&P 500 futures pointing higher and Asian shares climbing broadly. Bitcoin rose 2.5 per cent as haven trades unwound. Gold rose 2.5 per cent to $4,326.29 an ounce, and silver jumped 3.7 per cent to $70.46, while the dollar slipped against its major peers.
The interim accord sets the stage for 60 days of talks on the future of Iran's nuclear programme. Even as he hailed the breakthrough, Mr Trump told the New York Times that he could restart military strikes if no agreement is reached.
