WTI Oil plunges as Trump revives US-Iran peace hopes

• Oil remains under heavy pressure amid hopes for a deal between the United States and Iran.
• Investors await talks between Washington and Tehran on the Strait of Hormuz and Iran's nuclear program.
• OPEC+ production increase reinforces a stronger global supply outlook.

West Texas Intermediate (WTI) US Oil trades around $78.45 at the time of writing on Monday, down 7.76% on the day, as investors unwind the geopolitical risk premium following announcements of a potential agreement between the United States (US) and Iran.

US President Donald Trump said that a large-scale military strike against Iran had been suspended after Tehran agreed to the framework of a deal covering its nuclear program and the reopening of the Strait of Hormuz. The US President also said that talks between the two countries are scheduled to begin on Monday afternoon, fueling expectations of a de-escalation that could reduce the risk of disruptions to global Oil supplies.

However, Iran's Foreign Ministry struck a more cautious tone. Spokesperson Esmail Baghaie said that Tehran is currently holding no discussions with the United States regarding the reopening of the Strait of Hormuz, while confirming that talks with Oman on the issue are ongoing.

Meanwhile, the Organization of the Petroleum Exporting Countries and its allies (OPEC+) agreed on Sunday to increase production quotas by around 188,000 barrels per day from September, completing the unwinding of the voluntary output cuts introduced in 2023. The prospect of a stronger supply is adding further downward pressure on Oil prices.

Oil retreats as US-Iran diplomacy tempers fears but supply constraints persist

According to TD Securities, “renewed deal hopes have seen CTAs turn modest sellers of crude oil,” but the bank argues that “the market read is overly bearish, with global flows remaining heavily constrained.” Strategists highlight that “the production recovery in the Middle East has faltered amid the latest escalations,” warning that “any potential agreement similar to those that have failed within weeks, likely won't be enough to generate sufficient and consistent incoming tanker traffic.” They note that “flows through Hormuz, including Gulf of Oman ship-to-ship transfers, have been at 3-4.5m b/d in the last two weeks, which is inline with what the current production profile would imply,” underscoring that physical supply remains tight despite the latest pullback in prices.

BNY observes that “diplomacy buys time,” with the US and Iran “also communicating again, likely through regional intermediaries.” The bank reports that President Donald Trump “canceled planned strikes after allies outlined a potential framework covering de-escalation, the Strait of Hormuz and Iran’s nuclear program,” and that “oil prices have fallen sharply in response.” BNY notes that Trump said “new Iran talks would begin on Monday afternoon after he scrapped a planned military strike,” presenting the move as a response to “allied appeals from the Middle East, including Saudi Arabia,” and “as part of efforts to reach a broader deal.” According to BNY, Trump indicated the talks “could help reopen the Strait of Hormuz and keep alive a path to curb Iran’s nuclear program.” The bank adds that “the remarks eased market stress, with Brent crude falling sharply in early Monday trading after recent gains,” even as Iran countered that it currently has “no negotiations with the U.S.” In price terms, BNY cites Brent “-4.652% to 83.84, WTI -5.799% to 79.76, Omani crude -3.525% to 79.93, Dubai crude +1.8% to 81.109,” illustrating the sharp but uneven reaction across key benchmarks.