Oil prices fell during Monday's Asian trade after the United States and Iran paused military strikes over the weekend, fuelling hopes that the two-week conflict could move towards a diplomatic resolution and allow shipping to gradually resume through the Strait of Hormuz.
By 3:55 pm AEST (5:55 am GMT), Brent crude futures had fallen $4.72, or 4.9%, to US$92.06 a barrel, while U.S. West Texas Intermediate (WTI) crude dropped $4.61, or 5.2%, to $84.70 a barrel.
Brent crude had briefly climbed above US$100 a barrel during the conflict as disruptions to shipping through the Strait of Hormuz spilled over into the Red Sea, restricting exports from Saudi Arabia via the Bab el-Mandeb Strait.
ING commodities strategists said the sharp sell-off reflected how eager markets were for signs of easing tensions.
"The price action in oil this morning clearly reflects the market's desperation for positive news. After 13 days of strikes, the U.S. has held off on further strikes over the last 2 days, while Iran also paused retaliatory attacks.
"The recess has seen Brent retreat aggressively, down more than 7% at one stage, briefly below US$90/bbl. While this is the first tangible signal of de-escalation, the reasons behind it are less clear. There’s little explanation from the US.
"Also, it hasn’t yet led to any meaningful pickup in vessel flows through the Strait of Hormuz. We’re unlikely to see any recovery until there’s clarity on whether this de-escalation is more permanent and whether vessels can navigate the strait without fear of attack."
Despite the pause in hostilities, shipping activity remained subdued. Reuters, citing data from Kpler, reported that fewer than 10 commodity vessels transited the Strait of Hormuz each day over the weekend, well below normal levels.
Traffic through the Bab el-Mandeb Strait also remained under pressure after Yemen's Houthi forces attacked Saudi oil installations along the Red Sea coast.
However, a third Chinese supertanker successfully exited via the strategic waterway, offering a modest sign that some shipments were continuing.
