Oil prices fell sharply on Monday morning as diplomatic efforts to contain the war with Iran accelerated. Brent crude, the global benchmark, dropped more than 6% from around $117.4 per barrel at the end of Friday's trading to about $110 at the time of writing this report. Additionally, the American benchmark West Texas Intermediate also fell by about 2%, reaching $101.5 per barrel.
Recent Developments and Their Impact on the Oil Market
The closing price of Brent on Friday was the highest since March 19, and it was only about 2% away from the peak of $119.5 in early March, at the onset of the war with Iran. Before the conflict began, Brent was trading at around $72 per barrel. Prices had surged last week, particularly after Houthi rebels in Yemen, an Iranian-aligned armed group, attacked airports and energy facilities in Saudi Arabia, the world's largest oil exporter. However, the market sentiment shifted over the weekend.
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Reports indicate that Qatari mediators traveled to Tehran on Sunday in coordination with Washington, and the Saudi defense minister, the head of the Pakistani army, and the head of Turkish intelligence were expected to arrive in the Iranian capital on Monday for regional security talks. These diplomatic moves have significantly impacted the oil market, and supply risks remain. The Houthis have announced that they targeted Saudi airports and energy facilities again over the weekend, and Riyadh has reported intercepting more missiles and drones.
Trump's Remarks and Oil Export Status
Donald Trump, the President of the United States, mentioned in an interview that he is weighing a deal with Tehran. He described the situation as a choice, saying: "Should I make a deal with them or end their game?" Trump also reported an increase in oil passing through the Strait of Hormuz, claiming that the oil exiting the strait is now higher than pre-war levels. Before the war, about one-fifth of the world's oil passed through the Strait of Hormuz.
According to ship tracking company Clipper, crude oil exports from Gulf countries, excluding Iran, returned to pre-war levels in September, but now about 40% of these exports are conducted through pipelines without passing through the strait; whereas before the conflict, this share was about 17%.
Economically, investors are preparing for a news-heavy week regarding interest rate decisions by major central banks around the world. In Europe, the broad Stoxx 600 and Euro Stoxx 50 indices were both trading more than 0.6% higher than Friday's closing levels. Additionally, the earnings report season is reaching its peak.
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