Oil prices dropped nearly 4% on Monday, erasing much of last week’s conflict-driven gains, as traders reacted to signs of easing tensions between Israel and Iran. The reversal came sharply after a Wall Street Journal report indicated that Iran is urgently signaling its desire to halt hostilities and resume negotiations over its nuclear program. Brent crude fell approximately 3.65% to trade near $75.50 per barrel, while U.S. West Texas Intermediate (WTI) slipped about 3.71% to around $70.27 during intraday trading.
The sharp retreat comes after a dramatic rally last week, when Brent gained roughly 12.5% and WTI climbed about 13% on escalating Middle East tensions.
On Friday alone, both benchmarks surged nearly 7% following reports of Israeli strikes targeting Iranian military and oil-related sites, fueling fears of major disruptions to regional oil flows.
However, over the weekend, fresh signals of diplomatic outreach between Israel and Iran have helped calm markets, also prompting panicked oil shippers into some sort of temporary calm. So far, key energy infrastructure and shipping routes — including the crucial Strait of Hormuz — have been spared from damage, easing immediate supply concerns.
As FXStreet notes, traders are now watching diplomatic developments closely, with hopes that further escalation can be avoided.
The sharp drop in oil prices may also ease inflationary pressures globally, potentially influencing monetary policy decisions ahead of key central bank meetings, including the U.S. Federal Reserve.
Still, analysts warn that the situation remains highly fluid. Any renewed hostilities in the region could quickly reverse the declines and send prices sharply higher again, particularly any event targeting oil and gas infrastructure.
Some analysts also pointed to technical factors contributing to Monday’s drop. After last week’s sharp rally, oil prices appeared overbought, triggering profit-taking by hedge funds and other speculative traders who had aggressively built long positions during the conflict, according to several market participants.
By Charles Kennedy for Oilprice.com
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