Oil Drops, Market Monitors US-Iran Nuclear Deal
Oil prices weakened as investors weighed the chances of a nuclear deal between the US and Iran. Market focus was on the upcoming negotiations in Geneva, amidst the increased US military presence in the Middle East, which kept sentiment volatile.
Brent fell to near US$71 per barrel after closing virtually unchanged on Friday, despite US President Donald Trump's statement that he was considering a limited military strike against Iran. Selling pressure continued on both benchmarks, including WTI crude, on Monday.
From a diplomatic perspective, Iranian Foreign Minister Abbas Araghchi stated that the opportunity for a diplomatic solution was still open and would lead to a mutually beneficial outcome. He said he hoped to meet US special envoy Steve Witkoff for talks in Geneva, leading the market to view the negotiation path as potentially reducing the geopolitical risk premium.
Despite today's price decline, oil rallied earlier in the year despite many projections predicting the market heading towards a global oversupply. This increase was driven by concerns about the US-Iran conflict, which triggered hedging activity in the futures and options markets. Market participants believe prices could fluctuate rapidly if supply is disrupted, particularly if Iranian exports are hit or there are disruptions in the Strait of Hormuz, a vital global oil and LNG shipping route.
Interestingly, market structure indicators suggest risk tensions are beginning to cool. The Brent prompt spread (the difference between the two nearest contracts) has narrowed to around 43 cents per barrel, significantly lower than the more than US$1 level at the end of January, although it remains in a bullish backwardation. In Monday afternoon trading in Singapore, April Brent fell around 1% to US$71.02/barrel, while April WTI weakened 1.1% to US$65.74/barrel. (alg)
Source: Newsmaker.id
