Oil prices hit a two-week low on Monday as growing hopes of a U.S.-Iran deal raised prospects of reopening the Strait of Hormuz.
Brent crude futures slid $4.44, or 4.3%, to $99.10 a barrel by mid-morning London time, while U.S. West Texas Intermediate fell $4.36, or 4.5%, to $92.24. Both benchmark contracts sank to their weakest levels since May 7 earlier in the session, a sharp reversal that underscored just how sensitive global energy markets remain to geopolitical developments in the Persian Gulf.
The catalyst for Monday’s sell-off was a weekend statement by U.S. President Donald Trump, who declared that Washington and Tehran had “largely negotiated” the framework of an agreement that would reopen the Strait of Hormuz, a narrow waterway that, before hostilities erupted, carried approximately one-fifth of the world’s seaborne oil and liquefied natural gas shipments.
The announcement sent traders scrambling to price in the prospect of a restored crude supply pipeline from the Gulf.
But seasoned market watchers were quick to pump the brakes. By Sunday, Trump himself had tempered expectations, revealing that he had instructed his negotiating team not to rush into any agreement, signaling that several contentious issues, including the blockade of the Strait itself, remain firmly unresolved.
That whiplash was not lost on analysts. “We’ve been at this stage before, only for talks to break down,” warned Warren Patterson, Head of Commodities Strategy at ING. “Therefore, the market will likely be more cautious about overreacting.”
It is a sentiment born of hard experience; previous rounds of U.S.-Iran negotiations have collapsed at the eleventh hour, leaving markets wrongfooted and investors nursing losses.
The diplomatic picture grew murkier on Monday as both sides publicly downplayed the prospect of an imminent deal. U.S. Secretary of State Marco Rubio offered what amounted to a veiled ultimatum, stating that Washington would either secure a “good agreement” or address the Iran situation by “another way.” The ambiguity of that phrase sent its own signal to markets: military options, however unlikely, have not been taken off the table.
From Tehran, Foreign Ministry spokesperson Esmaeil Baghaei sought to clarify Iran’s position, stating that his country was engaged in negotiations to end the conflict but was emphatically not discussing nuclear issues at this stage.
The remark is significant. Washington has long insisted that any durable agreement must encompass constraints on Iran’s nuclear programme, suggesting that the two sides may still be talking past each other on the most fundamental terms of any settlement.
Even as diplomats talked, the physical reality on the water told a more sobering story. Analysts cautioned that a return to normal oil flows through the Strait, even in the event of a deal, is likely still months away, as battered oil and gas infrastructure along the Gulf coastline requires extensive repair.
“We continue to believe that the key factors for the oil market to watch should be the physical oil flows, and so far, flows through the Strait remain restricted,” said Giovanni Staunovo, oil analyst at UBS.
Shipping data provided faint glimmers of movement. Two LNG tankers were observed navigating out of the Strait on Monday, bound for Pakistan and China, respectively, a trickle, but a trickle nonetheless.
More symbolically, a supertanker laden with Iraqi crude departed the Gulf for China on Saturday, after being stranded for nearly three months, one of dozens of vessels caught in commercial limbo since hostilities began.
On the domestic front, U.S. energy firms are responding to elevated prices with renewed vigor. The American oil and gas rig count climbed by seven to 558 in the week ending May 22, according to data from Baker Hughes, its fifth consecutive weekly gain and the highest level recorded since June 2025.
It marks the first sustained multi-week drilling increase since February 2025, a sign that producers are betting that prices will remain elevated long enough to justify the capital expenditure.
Rig counts are closely watched as a leading indicator of future production capacity. More rigs today mean more barrels in the months ahead. However, the broader context offers a note of caution: the total count remains eight rigs, or roughly 1%, below where it stood at this time last year, suggesting the industry has yet to fully recover the ground lost during the conflict-driven disruptions.
Monday’s price moves capture with precision the impossible balancing act facing oil traders right now. On one hand, the mere suggestion of a diplomatic resolution is enough to knock $4 off the price of a barrel.
On the other hand, the hard-won scepticism of experienced market participants and the very real physical constraints still strangling Gulf supply chains mean that any rally built on peace talk headlines is liable to unravel just as quickly.
With both sides still publicly hedging their positions, the Strait of Hormuz remains closed, hundreds of tankers remain stranded or rerouted, and the global economy continues to absorb fuel prices that, while off their recent peaks, remain historically elevated.
Until the first supertanker sails freely through that narrow passage under a durable ceasefire, traders will be wise to heed Patterson’s counsel: don’t overreact.
WHAT YOU SHOULD KNOW
Oil prices dropped sharply on Monday on hopes of a U.S.-Iran peace deal, but the market’s optimism is premature. While diplomatic talks are progressing, both sides remain divided on critical issues, and the Strait of Hormuz, the jugular vein of global energy supply, stays firmly shut.
Even if a deal is struck tomorrow, analysts warn that months of infrastructure repair stand between the world and normalized oil flows.
