Oil Corrects, Iran Signals Easing Risk Premium!
Oil prices weakened after signs emerged that Iran would attend negotiations with the United States in Islamabad before the ceasefire expires. This movement followed a sharp rally the previous day, as the market quickly responded to any changes in the diplomatic and security status of energy shipping lanes.
Brent crude fell as much as 1.1% to $94.44 per barrel after surging 5.6% on Monday. Iran is said to be sending a team to the Pakistani capital, although it is unclear who is leading the delegation, after Tehran previously expressed hesitation about participating in further talks.
From the US side, Vice President JD Vance is scheduled to depart for further negotiations "Tuesday night or Wednesday morning," according to a statement from President Donald Trump. Trump also said it was "highly unlikely" to extend the ceasefire, which expires "Wednesday night Washington time," keeping the window for a deal tight and potentially fueling headline volatility.
In recent days, the oil market has fluctuated wildly on perceptions about whether de-escalation can be achieved and whether ships can return to the Strait of Hormuz, a waterway that typically handles about a fifth of global oil flows. Pepperstone Group strategist Dilin Wu believes the market will be “highly sensitive” to headline updates in the next 24 hours, as the choice is between de-escalation or more prolonged disruptions, particularly on the energy supply side.
However, conditions in Hormuz remain far from normal. Shipping flows are said to be nearly stagnant after the crisis escalated over the weekend following the seizure of an Iranian vessel by the US Navy, gunfire on the vessel, and the reimposition of controls in the strait. On the diplomatic front, Chinese President Xi Jinping called for an immediate ceasefire and the restoration of normal transit in Hormuz in talks with Saudi Crown Prince Mohammed bin Salman, while price risks remain prominent with Citigroup projecting that oil could reach $110 if the disruption lasts a month, and the IEA estimating energy volatility could persist for up to two years.
In recent trading, Brent June contract fell 0.8% to $94.73 per barrel (8:20 a.m. Singapore time), while WTI June contract fell 1.2% to $86.37; the less active May contract fell 1.7% to $88.07 ahead of expiry on Tuesday. This oil correction could ease short-term inflationary pressures, but if Hormuz uncertainty persists, the energy risk premium could potentially lift oil again. For gold, a decline in oil prices typically reduces inflationary pressures, but hedging demand could persist as long as geopolitical risks and cross-asset volatility persist.
5 key points (detailed & simplified):
Oil fell on signals that Iran would attend US-Iran negotiations in Islamabad before the ceasefire expires.
Brent fell as much as 1.1% to $94.44 after rising 5.6% on Monday; in the Asian session, June Brent fell 0.8% to $94.73, and June WTI fell 1.2% to $86.37.
Trump announced that JD Vance would depart for negotiations Tuesday night/Wednesday morning and said it was unlikely to extend the ceasefire, which expires Wednesday night Washington time.
Volatility was driven by uncertainty over shipping access to Hormuz, a passageway for about a fifth of global oil flows, while shipping flows remained nearly halted after the weekend incident.
Price risks remain high: Citi warns of a potential $110 price spike if a month of disruption occurs, the IEA assesses that energy volatility could persist for a long time; as a result, oil could easily rebound, and gold remains sensitive to the combination of inflation, the dollar, and risk-off. (asd)*
Source: Newsmaker.id
