Oil prices declined sharply on Monday, with both benchmarks falling by roughly 11%, after the U.S. announced a five-day delay in potential military strikes on Iranian power infrastructure and pointed to constructive diplomatic discussions aimed at de-escalating the conflict.
Brent crude settled at $99.94 per barrel, down $12.25 or 10.9%, while U.S. West Texas Intermediate (WTI) crude settled at $88.13 per barrel, down $10.10 or 10.3%. Earlier in the session, crude futures dropped as much as 15% before trimming losses amid renewed geopolitical developments.
The recent period of extreme price swings has pushed 30-day crude futures volatility to its highest level since April 2022. Refined products followed suit, with U.S. gasoline and diesel futures declining nearly10% after reaching their highest levels since 2022 at the end of last week.
Market sentiment shifted after indications of potential diplomatic progress between the U.S. and Iran, though uncertainty remains elevated. Iran denied engaging in negotiations and signaled continued escalation, including threats to target regional energy infrastructure.
The ongoing conflict has already caused significant disruption to energy markets, including damage to major Gulf facilities and a near halt in shipping through the Strait of Hormuz. While limited cargo movements were reported, overall traffic through the waterway remains heavily constrained. Analysts estimate that between 7 million and 10 million barrels per day of Middle Eastern supply may be offline.
In response to the supply shock, sanctions on certain Russian and Iranian oil cargoes already at sea have been temporarily eased, with some Asian refiners preparing to increase purchases. However, U.S. officials indicated that additional releases from the Strategic Petroleum Reserve are unlikely in the near term.
Globally, supply risks remain elevated. Russian export flows faced intermittent disruption following drone-related alerts at Baltic ports, while macroeconomic uncertainty persists. Central banks continue to assess the inflationary impact of higher energy prices, with policymakers weighing the balance between inflation control and economic support. Meanwhile, weakening consumer confidence in Europe and disruptions to global air travel highlight the broader economic implications of the conflict.