Oil markets moved lower on Monday after the latest round of talks between the United States and Iran concluded in Switzerland, with Tehran reporting progress that could eventually increase Iranian energy exports and improve global supply conditions.
Brent crude fell $1.68, or 2.09%, to $78.89 a barrel by 06:33 GMT. Earlier in the session, prices had climbed as high as $82.30 after a volatile start to trading driven by renewed tensions surrounding the negotiations.
U.S. West Texas Intermediate crude for July delivery traded at $76 a barrel, down 60 cents ahead of the contract’s expiration later in the day. The more actively traded August contract declined 69 cents to $75.16 a barrel. U.S. markets did not settle on Friday due to a public holiday.
Diplomatic Progress Weighs on Crude
The decline followed comments from Iranian officials suggesting that negotiations had yielded meaningful results.
Iranian Foreign Minister Abbas Araqchi said Tehran had secured waivers covering oil and petrochemical exports, access to certain frozen assets and the implementation of a reconstruction and development programme.
According to Sugandha Sachdeva, founder of SS WealthStreet, “The decline has been driven primarily by improving prospects for a diplomatic breakthrough between the United States and Iran … reviving hopes that sanctions on Iran could eventually be eased.”
Such an outcome could have a significant impact on global oil flows.
“Such a development would allow nearly 1.5 million barrels per day of Iranian crude to return to international markets, significantly improving global supply availability at a time when demand growth remains moderate,” Sachdeva said.
First Round of Talks Concludes
Mediators confirmed that senior U.S. and Iranian representatives completed the first phase of negotiations in Switzerland on Monday.
The discussions began on Sunday under the framework of a memorandum of understanding reached last week, which extended the fragile ceasefire first agreed in April by at least another 60 days.
While both sides signalled progress, market participants remain cautious given the complexity of the issues still under discussion.
Strait of Hormuz Remains a Key Risk
Before the talks concluded, shipping activity through the Strait of Hormuz dropped sharply on Sunday after Iran announced that it had once again closed the strategic waterway, citing alleged violations of the interim peace agreement by Israel and the United States.
Meanwhile, tensions elsewhere in the region remained elevated. Lebanon’s state news agency reported that Israeli strikes killed at least 20 people on Saturday, one day after a ceasefire with Hezbollah came into force.
“Recent developments show that moving towards a more permanent deal will be challenging, with very real risks of a flare-up in hostilities during the 60-day ceasefire,” ING analysts said in a note issued before the conclusion of the Swiss negotiations.
Supply Expectations Continue to Pressure Prices
Despite ongoing geopolitical risks, oil prices fell more than 8% last week as traders increasingly focused on the prospect of additional supply entering the market.
Expectations have been supported by the release of cargoes previously stranded in the Gulf and the possibility that U.S. sanctions on Iranian oil exports could eventually be relaxed as part of a broader agreement.
Hamid Bovard, head of the National Iranian Oil Company, said more than 25 million barrels of Iranian crude had crossed the virtual blockade line since Monday.
Additional supply could also come from elsewhere in the region. The United Arab Emirates, Kuwait and Iraq have all offered increased volumes to customers over the past week.
Iraq’s deputy oil minister for upstream affairs said the country intends to gradually increase crude production to between 4.2 million and 4.3 million barrels per day.