Oil prices declined to their lowest levels in two weeks on Monday amid increasing optimism that the U.S. and Iran were making progress toward a peace agreement, despite ongoing significant disagreements over critical issues, including restrictions on the Strait of Hormuz that continue to affect Middle East oil supplies. On Saturday, U.S. President Donald Trump stated that Washington and Tehran had “largely negotiated” a memorandum of understanding regarding a peace deal that would facilitate the reopening of the Strait of Hormuz, a critical route that managed nearly one-fifth of global oil and liquefied natural gas shipments prior to the onset of the conflict. Brent crude futures experienced a decline of $4.71, representing a 4.55% decrease, settling at $98.83 per barrel. Meanwhile, U.S. West Texas Intermediate crude fell by $4.57, which is a 4.73% drop, reaching $92.03 per barrel. Earlier in the session, both benchmarks reached their lowest points since May 7.

Last week, U.S. crude prices experienced a decline exceeding 8%, while Brent saw a reduction of over 5%, following Trump’s announcement regarding the cancellation of imminent airstrikes against Iran, aimed at providing additional time for diplomatic efforts. Despite the recent pullback, oil prices remain elevated, having increased by over 30% since the U.S. and Israel initiated attacks on Iran on February 28. Negotiations continue to be intricate. Trump stated on Sunday that numerous challenging issues persist in creating a divide between the two parties and suggested that the U.S. is not rushing to conclude an agreement. “The negotiations are proceeding in an orderly and constructive manner, and I have informed my representatives not to rush into a deal when that time is on our side,” Trump stated in a social media post on Sunday.

Since early March, Iran has implemented a blockade in the Strait of Hormuz, necessitating that vessels secure clearance prior to traversing this critical passage, or face the risk of being targeted. The restrictions were imposed following U.S. and Israeli strikes that resulted in the death of Iran’s Supreme Leader Ayatollah Ali Khamenei, along with several senior leaders. The Strait of Hormuz continues to be a pivotal oil chokepoint globally, facilitating approximately 20% of the world’s oil supply transiting through the passage prior to the onset of the conflict. Iran’s blockade has significantly curtailed crude exports from the Middle East, resulting in what is characterised as the most substantial supply disruption in history. Even if a deal is reached, analysts anticipate that it may take several months for oil shipments through the strait to fully normalise and for the damaged energy infrastructure to be repaired.

Earlier this month, Saudi Aramco CEO Amin Nasser cautioned that disruptions in Hormuz could postpone stability in global oil markets until 2027, with nearly 100 million barrels of oil supply per week potentially affected. Saudi Aramco stands as the preeminent oil producer globally. Meanwhile, Morgan Stanley indicated that the oil market is in “a race against time,” warning that the elements restraining crude prices from increasing further could diminish if the Strait of Hormuz remains closed through June. The broking noted that increased U.S. crude exports and diminished demand from China have thus far mitigated the risk of a more severe supply shock. However, it cautioned that a prolonged closure of Hormuz could further constrict global supplies if disruptions persist beyond the absorption capacity of the U.S. and China.