SINGAPORE: Oil prices hit two-week lows on Monday (May 25) on optimism that the US and Iran were moving closer towards a peace deal, even though they remained at odds over key issues, including blockades on the Strait of Hormuz that continued to restrict oil supply from the Middle East.
Prices plunged more than 5 per cent in Asian early trading on Monday.
As of around 11pm GMT (7am Singapore time) on Sunday, the price of North Sea Brent crude slipped 5.1 per cent to US$98.22 per barrel, while West Texas Intermediate fell 5.2 per cent to US$91.57 a barrel.
Both contracts touched their lowest since May 7 earlier in the session.
Japan’s Nikkei share index rose more than 2.5 per cent as of around 12.30am GMT. Sydney crept slightly higher, while Hong Kong and Seoul were closed for public holidays.
Nick Twidale, chief market analyst at ATFX Global, said that he expects the market to embrace more risk on Monday but not to surge higher until there is confirmation that the Strait of Hormuz will reopen.
“We will need to see an agreement out in place in the coming sessions as we know there are still some major sticking points,” he said.
The most important issues for financial markets are when the Strait of Hormuz will reopen, Commonwealth Bank of Australia strategists said in a note.
“Under what conditions the Strait will reopen and how long it will take to repair production facilities and infrastructure to ramp up production of energy and other goods to pre‑war levels,” they said.
On Saturday, US President Donald Trump said that Washington and Iran had “largely negotiated” a memorandum of understanding on a peace deal that would reopen the Strait of Hormuz, which before the conflict carried one-fifth of global oil and liquefied natural gas shipments.
However, the two sides remain at odds on several difficult issues, with Trump saying on Sunday he had told his representatives not to rush into any deal with Iran.
MST Marquee analyst Saul Kavonic said: “Notwithstanding all the caveats and risks that remain to the peace deal and Strait of Hormuz, there is now some light at the end of the tunnel, which will bring some near-term oil price relief.”
However, analysts expect that it will take months for oil flows through the strait to return to normal and for damaged oil and gas facilities to be repaired.