Oil Prices Slide to $92 as US-Iran Pause Revives Strait of Hormuz Hopes

Brent crude fell 5.2 per cent to about $92 a barrel on Monday as a pause in hostilities between the United States and Iran revived hopes of renewed diplomacy and a possible reopening of the strategic Strait of Hormuz.

Oil prices fell sharply on Monday after the United States and Iran appeared to step back from further escalation, easing fears of prolonged disruption to global energy supplies.

Brent crude, the international benchmark, declined 5.2 per cent to trade at around $92 a barrel, while US West Texas Intermediate (WTI) crude fell 5.4 per cent to about $84.45 a barrel.

The decline followed a weekend pause in the tit-for-tat attacks between Washington and Tehran, raising hopes that the fragile ceasefire could be restored and that negotiations over the safe passage of vessels through the Strait of Hormuz could resume.

The development came after 13 days of attacks on targets in Iran. The United States reportedly held fire over the weekend, while US President Donald Trump's envoy to the United Nations indicated that the president was allowing diplomatic efforts some room to develop.

Iran, in response, said it would halt retaliatory attacks on regional neighbours, providing temporary relief for Gulf shipping and the global oil market.

The latest de-escalation has raised hopes that the two countries could return to negotiations after renewed hostilities this month disrupted an already fragile truce.

The tensions had intensified following an Iranian attack on ships passing through Omani waters in the Strait of Hormuz, one of the world's most strategically important energy corridors.

The escalation subsequently spread beyond the immediate area, with Iran-backed Houthi rebels in Yemen also targeting Saudi vessels in the Bab al-Mandeb Strait, another vital maritime passage linking the Red Sea to the Gulf of Aden.

The developments had triggered a sharp rally in crude prices, with Brent crude rising above $100 a barrel last week for the first time since May as traders priced in the possibility of prolonged disruption to global oil supplies.

However, reports that shipping activity continued through the Red Sea helped investors reduce some of those gains on Friday, while the latest signs of diplomatic movement between Washington and Tehran further eased market concerns.

Iran's Foreign Ministry spokesman, Esmaeil Baqaei, said Tehran had made progress in discussions with Oman regarding the management of the Strait of Hormuz.

According to Baqaei, the talks focused on establishing "common principles and operational mechanisms" to guarantee the safe passage of shipping through the strategic waterway while respecting the sovereignty of the countries involved.

The Strait of Hormuz is a critical route for global energy supplies, making any prolonged disruption to shipping through the waterway a major concern for oil markets and the wider global economy.

Reports also indicated that Pakistan could become involved in efforts to revive US-Iran peace talks, following a diplomatic initiative reportedly encouraged by China.

The prospect of renewed negotiations helped reinforce market optimism on Monday.

Brent crude fell more than seven per cent at one point during trading, briefly slipping below the $90 mark before recovering some ground.

Sally Auld of National Australia Bank said the latest developments appeared to suggest that the Middle East situation had moved in a more positive direction over the weekend.

She noted that the decline in oil prices could reinforce expectations that the sharp rise above $100 a barrel had created additional incentives for both sides to seek de-escalation.

The easing of oil prices also helped reduce concerns about a fresh surge in global inflation and the possibility of additional interest rate increases, providing some support for equity markets.

However, broader concerns remained across global financial markets, particularly over the sustainability of the artificial intelligence investment boom and the huge sums being committed to the technology sector.

Technology stocks remained under pressure in several Asian markets, with Seoul recording notable losses as major chipmakers SK hynix and Samsung came under renewed selling pressure.

Taipei and Singapore also recorded declines, while Jakarta's market weakened following the unexpected resignation of Indonesian central bank governor Perry Warjiyo, who reportedly cited personal reasons.

Tokyo's main index gained ground, although technology companies including Advantest, Kioxia and Tokyo Electron faced significant selling pressure.

Markets in Hong Kong, Sydney, Shanghai, Wellington and Manila, meanwhile, traded higher.

Investors are also watching a busy corporate earnings calendar this week, with results expected from major Asian technology companies including SK hynix, Samsung and Japan's Kioxia.

In the United States, major technology companies including Microsoft, Meta, Apple and Amazon are also expected to release results, with investors likely to focus heavily on their outlooks, capital expenditure and spending plans.

Tim Waterer of KCM Trade said investors remained cautious about the scale of capital expenditure being committed to the technology sector, particularly amid uncertainty over how quickly companies would begin to see returns on their massive investments.

Attention is also turning to the US Federal Reserve's latest monetary policy decision, with policymakers expected to assess the impact of the latest US-Iran tensions alongside recent indications that inflationary pressures may be easing.

Market expectations for an interest rate hike have increased over the past week, although analysts broadly expect the Federal Reserve to leave rates unchanged at its July meeting.

Jenny Zeng of Allianz Global Investors, however, warned that although the policy-setting committee was likely to remain on hold in July, further tightening could still be on the cards before the end of the year.

"While the (policy board) is likely to remain on hold in July, we continue to expect 50 basis points of tightening by year-end," she said.

CXMT Surges on Shanghai Debut

In company news, Chinese memory chipmaker ChangXin Memory Technologies (CXMT) recorded a dramatic surge on its first trading day in Shanghai.

The company's shares reportedly jumped 470 per cent at one point, briefly making it more valuable than Chinese banking giant ICBC by market capitalisation.

The extraordinary market debut followed CXMT's reported $9.8 billion initial public offering, which Bloomberg News described as the largest-ever mainland technology share sale in China.

Key Market Figures Around 0230 GMT

• West Texas Intermediate (WTI): Down 4.3 per cent at $85.45 a barrel

• Brent North Sea Crude: Down 3.9 per cent at $92.97 a barrel

• Tokyo Nikkei 225: Up 0.2 per cent at 64,764.01

• Hong Kong Hang Seng Index: Up 0.8 per cent at 25,160.38

• Shanghai Composite: Up 0.3 per cent at 3,826.19

• Euro/Dollar: Up at $1.1408, from $1.1373 on Friday

• Pound/Dollar: Up at $1.3357, from $1.3323

• Euro/Pound: Up at 85.41 pence, from 85.34 pence

• Dollar/Yen: Down at 163.54 yen, from 163.84

• New York Dow: Up 0.5 per cent at 51,947.25

• London FTSE 100: Up 0.9 per cent at 10,736.23

SkyHigh News Hub will continue to monitor developments in the US-Iran conflict, global oil markets and their potential implications for energy prices, inflation and the wider economy.

AFP