Oil tumbles nearly 7% as US and Iran seen moving closer to deal
Market Reactions and Negotiation Developments
By Amanda Stephenson
CALGARY, May 25 (Reuters) - Oil prices fell nearly 7% on Monday as optimism grew that the United States and Iran were moving closer to a peace deal that would reopen the Strait of Hormuz, even though Washington and Tehran played down hopes for an imminent breakthrough.
Oil Price Movements
Brent crude futures were down $7.24, or almost 7%, at $96.30 a barrel at 2:29 p.m. ET (1843 GMT) and U.S. West Texas Intermediate futures were down $6.30, or 6.5%, at $90.88.
Trading volumes were light due to the U.S. Memorial Day holiday.
US-Iran Negotiation Progress
Iran's top negotiator and its foreign minister were in Doha for talks with Qatar's prime minister on a potential deal with the U.S. to end the three-month-old war, an official briefed on the visit said Monday.
Both sides said they have made progress on a memorandum of understanding that would halt the war and give negotiators 60 days to reach a final deal.
Market Analyst Perspectives
'GET SOME OIL MOVING'
"Even though it's not done, there seems to be some hope that we will start to get some oil moving through the Strait of Hormuz," said Phil Flynn, senior analyst with Price Futures Group.
But Rory Johnston, founder of the Commodity Context newsletter, sounded a note of caution.
"We've routinely gotten close and then collapsed on the details multiple times over the past couple of months and Hormuz remains closed," Johnston said.
Political Commentary and Regional Impact
In a lengthy Truth Social post on Monday, U.S. President Donald Trump said talks with Iran were going "nicely," but warned of fresh attacks if they failed.
He urged more Arab and Muslim states to sign up to the Abraham Accords, which were brokered during Trump's first term in office and aim to normalise ties between Arab and other Muslim-majority states and Israel.
"That could mean a significant reduction of risk premium in the Middle East, especially if a deal with Iran can be done and Iran gives up their nuclear material," Flynn said.
Iran's foreign ministry said on Monday Iran was negotiating an end to the war and was not currently discussing nuclear issues.
Outlook for Oil Flows and Supply
Challenges to Restoring Oil Flows
Even if a peace deal is reached, analysts expect a return to normal oil flows through the strait will take months, while damaged oil and gas facilities are repaired.
Analyst Insights on Supply Shortfall
"The underlying supply shortfall of 10-11 (million barrels per day) of crude oil does not go away immediately and will see markets still drawing inventories until Middle Eastern crude production is back online, which is months away," said Sparta Commodities analyst June Goh.
"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 UBS analyst Giovanni Staunovo.
Recent Ship Movements
Ship-tracking data showed three liquefied natural gas tankers passed through the strait in recent days, heading to Pakistan, China and India, as well as a supertanker with Iraqi crude for China after being stranded for nearly three months.
(Additional reporting by Ahmad Gaddar in London; Florence Tan and Sudarshan Varadhan in Singapore. Editing by Rod Nickel, Chizu Nomiyama and Nick Zieminski)
