Oil prices fell below $100 a barrel on Monday, with Brent crude futures dropping 6% to $97.43, the lowest in two weeks, amid optimism that the US and Iran may reach a peace deal to end the near three-month war. The decline also lifted stock markets, with Japan's Nikkei rising nearly 3% and the pan-European Stoxx 600 index up 1%.
Despite the progress, an Iranian government spokesperson cautioned that an agreement was "not imminent", and key issues such as Iran's blockade of the Strait of Hormuz remain unresolved. The strait's de facto closure had sent energy prices soaring after the US and Israel launched missile strikes on Tehran on 28 February.
Analysts warned against overreacting, noting that previous talks have broken down. Warren Patterson, head of commodities strategy at ING, told Reuters: "We've been at this stage before, only for talks to break down. Therefore, the market will likely be more cautious about overreacting." Even if the strait reopens, a return to normal oil flows could take months due to damaged energy infrastructure in Qatar and elsewhere.
Shipping data showed two tankers carrying liquefied natural gas exiting the strait on Monday, heading to Pakistan and China, while a supertanker with Iraqi crude left the Gulf bound for China on Saturday after being stranded for almost three months. However, UBS analyst Giovanni Staunovo said physical oil flows through the strait remain restricted.
Despite the fall, oil prices remain much higher than the pre-war level of about $70 per barrel. The dollar dipped 0.3% against major currencies, while the pound gained nearly 0.6% to $1.3506. Inflation fears have risen globally due to higher costs of oil, gas and fertiliser, which is expected to drive food prices higher. Markets now expect the Bank of England to raise rates twice this year.
