Oil prices declined by over $1 a barrel on Monday as investors realised profits in anticipation of an impending announcement from Washington regarding further sanctions against Iran, which may exacerbate supply disruptions from the Middle East. US Treasury Secretary Scott Bessent, who is scheduled to hold a press conference at 2 p.m. on Monday, has threatened to impose “the toughest sanctions in history” on Iran. US President Donald Trump has threatened sanctions against countries that engage in trade with Iran. Brent crude futures declined by $1.9, representing a 2% decrease, settling at $92.60 per barrel. Meanwhile, US West Texas Intermediate crude experienced a drop of $1.76, also a 2% reduction, bringing it to $85.20 per barrel.
Both benchmarks recorded their second consecutive weekly gains last week, increasing by over 5%, following a stalemate in peace talks between the US and Iran. The impasse has constrained oil shipments through the Strait of Hormuz, a critical passage for a fifth of the global oil supply. “It is unclear whether U.S. policy to economically isolate Iran will prove effective,” Vivek Dhar wrote in a note. He said that if the measures succeed as intended, Iran’s ability to respond through increased violence would become a growing risk for energy markets. Iran has expressed disapproval of Washington’s intentions regarding new sanctions, while President Masoud Pezeshkian has advocated for a diplomatic resolution. “The more pragmatic members of the Iranian leadership would prefer to de-escalate but the hardliners would probably prefer to fight to the bitter end,” analyst Tony Sycamore said.
“I think by the end of this week we will have a good idea which side of the Iranian leadership has the upper hand.” Offers of Iranian crude to Chinese buyers have decreased, while prices have increased as the US blockade has curtailed Tehran’s shipments, according to trade sources. Iran has permitted several Iraqi oil tankers to transit through the Strait of Hormuz following multiple appeals from Baghdad, as reported by the state news agency IRNA on Saturday. The duration of the disruption will be a critical determinant for crude prices. JPMorgan estimates that each additional month of disruption could result in an increase of approximately $7 to $8 per barrel in Brent prices.
If the disruption persists for three months, the bank anticipates that average monthly Brent prices will approximate $114 per barrel. Goldman Sachs has issued a cautionary note indicating that Brent may escalate to $120 a barrel should shipping disruptions persist through the Strait of Hormuz, which is recognised as the most critical oil transit route globally. Goldman Sachs anticipates that tensions in the Middle East will ultimately subside according to its base case scenario. The bank forecasts Brent to average $80 a barrel in the fourth quarter and $75 a barrel next year. It indicated that risks continued to be skewed toward the upside, with disruptions in the Strait of Hormuz and the Red Sea possibly enduring for a longer duration than anticipated.
