Trump Halts Attacks to Allow More Time for Diplomacy
Oil prices fell on Monday, dropping to their lowest level in more than a week, after the U.S. abruptly halted its weekend airstrikes against Iran. This raised hopes for a diplomatic solution that would allow for the resumption of shipping traffic in the Strait of Hormuz. Trump had threatened strong military intervention if talks with Iran failed. Despite the cessation of hostilities, traffic in the Strait of Hormuz remained low.
Brent crude futures fell $8.42, or 8.7%, to $88.36 a barrel, their lowest level since July 17. WTI crude futures fell $6.70, or 7.5%, to $82.61, their lowest level since July 16.
Last week, Brent crude futures had surpassed $100 a barrel due to the conflict, which reduced oil shipments through the Strait of Hormuz and spilled over into the Red Sea. This situation has hampered exports from Saudi Arabia, the world's largest oil exporter, to Asia via the Bab el-Mandeb Strait.
Trump decided to halt the US attacks to allow more time for diplomacy, saying there was "a high probability that something will happen" regarding a potential agreement. He also threatened "strong military action" if diplomacy fails.
Oil prices fell throughout Monday's session after Saudi Arabian air defenses intercepted and destroyed drones launched from Iraq. Houthi militias in Yemen claimed to have targeted sensitive crude oil supply and transport facilities connecting eastern Saudi Arabia to the critical Red Sea oil export hub of Yanbu.
The halt in military attacks may seem like an improvement, but it offers no guarantee that oil flows from the region will resume soon. Oil futures are likely to fall further if high price levels reduce demand again, not because of "dubious mini-ceasefires."
Analysts expect oil markets to be highly volatile due to updates on the informal ceasefire between the US and Iran, and warned that physical oil flow remains restricted despite the ceasefire.
Shipping volumes have remained largely low since the brief ceasefire in mid-June, limiting Middle East exports and forcing longer and more costly redirects via Suez for Saudi Arabian Red Sea cargo.
According to data, fewer than 10 commodity ships passed through the Strait of Hormuz daily over the weekend.
Oil flow has fallen to about 15% of its normal level of approximately 20 million barrels of crude oil, condensate, and petroleum products per day.
Additionally, ship traffic through the Bab el-Mandeb Strait decreased on Sunday following attacks by Yemeni Houthi militias on Saudi oil facilities along the Red Sea coast.
On the other hand, Kazakhstan, one of the world's top 10 oil producers, halved its daily oil production after Russia shut down its main Black Sea export terminal due to drone attacks.
The Energy Ministry later announced that the Caspian Pipeline Consortium had resumed oil shipments to its Black Sea terminal.
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