Oil prices fell after US President Donald Trump said new talks with Tehran would begin on Monday, after he called off a planned attack on Iran.
Brent crude for October delivery fell as much as 7.3%, after futures jumped nearly a quarter in July, their biggest monthly gain since March. West Texas Intermediate crude traded below $80.
Trump said on Sunday aboard Air Force One that he called off a massive attack on Iran after Middle Eastern allies, including Saudi Arabia, asked him to pursue a deal instead.
Trump added that he agreed to call off the attack, contingent on reaching a swift agreement to reopen the Strait of Hormuz, according to a previous post on Truth Social. He continued: Let's all get this done.
Takahiro Asaoka, a commodities researcher at the Itochu Research Institute Inc., said: The decline reflects a sense of relief at avoiding further escalation.
He added: The move appears to be largely driven by short covering as the geopolitical risk premium has eased. It is unlikely that oil prices will continue to fall unless an agreement is reached that allows shipping through the Strait of Hormuz to return to normal.
Brent crude traded in a range of around $32 last month, as fighting resumed following the collapse of the June ceasefire. This saw the conflict spill over into the Red Sea and Jordan, before another ceasefire, intended to allow diplomatic efforts to continue, broke down in late July.
European natural gas fell by as much as 6.3% in early Asian trading.
Anticipation of the resumption of shipping traffic through the Strait of Hormuz
Oil futures pared some of their early losses after the UK Maritime Trade Operations (UKMTO) said a tanker off Oman reported an explosion nearby on Sunday.
This highlighted the ongoing risks to shipping through the Strait of Hormuz, through which about one-fifth of the world’s crude oil and liquefied natural gas passes in peacetime, after an LNG tanker was hit by a shell late last week.
Meanwhile, Gulf producers continue to seek alternative export routes. Turkey and Iraq have agreed to extend an expired oil pipeline agreement for another year, allowing for the export of up to 750,000 barrels per day, according to the Iraqi Oil Ministry.
Iranian Foreign Minister Abbas Araqchi stated on Sunday via Telegram that negotiations between Iran and Oman have reached their final stages.
The two countries on either side of the strait are discussing a new route through it, but the talks do not address whether the waterway will be closed or remain open, according to Iraqi spokesman Ismail Baghaei, in an interview with Iranian state television.
Elsewhere, key countries in the OPEC+ alliance agreed to the latest small increase in their production quotas, a move that will complete the revival of supplies halted in 2023 and give the alliance room to add more barrels once the Middle East war is over.
In addition, Kazakhstan's energy ministry said the Caspian Pipeline Alliance is continuing operations, receiving 100,000 tons of oil per day as of August 1, following a temporary suspension on Friday.
While the alliance will allow ships to load, the pace of exports will also depend on how willing the tankers are to risk the journey.
A series of attacks on tankers loading at or near the Black Sea facility disrupted flows through the Caspian Pipeline Alliance, a key route for Kazakh crude exports.
