Oil prices plunged sharply into negative territory during early Monday trading, reversing a previously strong upward trend. Despite a new round of airstrikes in the Middle East over the weekend, reports of a proposed 10-day ceasefire between the US and Iran triggered a rapid sell-off in energy prices.
Earlier in the session, prices had climbed to their highest level in a month as renewed crossfire between the US and Iran further disrupted the anticipated recovery of crude supplies—a recovery the market had broadly expected following the signing of a memorandum of understanding between the two sides last month.
After giving up those gains, oil extended its decline. Reuters cited an Iranian source reporting that a proposal for a 10-day ceasefire was on the table, aimed at reviving the provisional peace agreement reached last month.
According to FactSet data, the global benchmark, September Brent crude, fell 1.6% to $86.67 per barrel. Earlier, it had surged as much as 3.8% to an intraday high of $91.42.
Nevertheless, Brent crude remains more than $16 above the lows hit in June when the US and Iran signed the memorandum aimed at reopening the Strait of Hormuz.
The August West Texas Intermediate contract also saw a significant reversal lower. The US benchmark was last down 2.2%, trading just under $80 per barrel, after having climbed to a high of $86.40 earlier.
Daniela Hathorn, Senior Market Analyst at Capital.com, stated, "Traders have trimmed some of the geopolitical risk premium that had been built into prices recently. While the conflict is far from resolved, the prospect of renewed talks has eased immediate market concerns about further disruptions to oil supply and shipping through the Strait of Hormuz."
This follows the US military's announcement of a ninth consecutive night of airstrikes on Sunday evening, stating, "The strikes will continue to degrade Iran's military capabilities used to attack commercial vessels and civilian mariners in the Strait of Hormuz."
Reports indicate the US has deployed multiple aircraft, including refueling tankers, to the Middle East, heightening market fears of a return to full-scale war. Iran stated on Saturday it had formally withdrawn from the ceasefire agreement. US President Trump had previously declared the agreement over. Media reports also stated that Iran launched attacks on targets in Jordan, Kuwait, and Bahrain on Sunday, while claiming the US struck an under-construction nuclear facility in southwestern Iran.
However, Stephen Innes, Managing Partner at SPI Asset Management, suggested the modest decline in oil "does not signal the market letting its guard down," but rather that "investors continue to view this conflict as a contained event within their cognitive framework, one they believe can be isolated."
He noted that the latest hostilities are "primarily being priced by the market as an oil, inflation, and regional risk event, rather than the beginning of a systemic shock."
In other developments, Yemen's Houthi group announced a maritime blockade against Saudi Arabia in response to recent attacks on Sana'a airport, though specifics of the blockade were not detailed.