Oil prices fell on Monday after surging in the previous session amid continued uncertainty over peace negotiations to end the Iran conflict.
US President Donald Trump said talks with Tehran were continuing “at a rapid pace”, after Iranian authorities earlier indicated that indirect negotiations with Washington had been suspended after another round of American air strikes.
Israel and Lebanese militia Hezbollah also agreed to stop attacking each other, raising the prospects of an agreement to end the Iran war.
Brent, the benchmark for two thirds of the world's oil, was down 1.68 per cent to $93.38 a barrel at 12.20pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was trading 1.58 per cent lower at $90.7 a barrel.
Crude prices surged on Monday amid the rise in geopolitical tension and the exchange of strikes by the US and Iran. Brent rose to an intraday high of $97.70 a barrel before giving back some gains to close 3.2 per cent higher at $94.98 per cent, while WTI settled 5.5 per cent higher at $92.16 a barrel.
“Yesterday the focus was on the strikes between the US and Iran. Iran struck an airbase in Kuwait, and the US took out some radar facilities for Iranian drones,” Sasha Foss, energy analyst at CSC Commodities, a division of Marex, told The National. This drove prices higher amid doubts over whether the ceasefire announced in April would hold.
“Today there's just some slightly bearish geopolitical news, with Trump kind of forcing the hand of Israel to stop bombing Lebanon, despite Israeli resistance. People are taking this as a sign the US President is forcing through the issue in terms of a truce and trying to get to a ceasefire, so that's why there's been a bit of a fallback.”
Mr Trump on Monday said he had secured a pledge from Hezbollah not to attack Israel, and that Israeli Prime Minister Benjamin Netanyahu had said his forces would not push deeper into Lebanon.
He also said an agreement to reopen the Strait of Hormuz, through which more than 20 per cent of global oil supplies usually flow, would be drawn up and signed “over the next week”.
“With commercial traffic through Hormuz still constrained and geopolitical tension extending to Lebanon, investors remain focused on the risk of prolonged supply disruptions in a region that normally handles around one fifth of global oil and LNG trade,” said Soojin Kim, research analyst at MUFG.
The blockade of the Strait of Hormuz and Iran's attacks on energy infrastructure in the Gulf pushed oil prices close to $120 a barrel in March. Prices have dropped in the past weeks but remain volatile amid growing expectations of a peace agreement.
However, if the ceasefire ends and fighting resumes, oil prices will probably soar again, Mr Foss said.
“If the ceasefire falls apart and the strait remains closed, then $150 [a barrel] is definitely on the cards,” he said.
“There has been a lot of market signals to suggest that that a peace is on the agenda, but it seems like we're still quite far apart in terms of the negotiations, in terms of the frozen assets for Iran and the so-called nuclear dust that America wants to take out of Iran.”
