Oil prices hit two-week lows on Monday on optimism that the United States and Iran were moving closer to a peace deal, although they remained divided over key issues, including blockades on the Strait of Hormuz that continued to restrict oil supply from the Middle East.
Brent crude fell $4.71, or 4.55%, to $98.83 a barrel, while US West Texas Intermediate dropped $4.57, or 4.73%, to $92.03 a barrel.
Both contracts touched their lowest levels since May 7 earlier in the session.
On Saturday, US President Donald Trump said 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, handled about one-fifth of global oil and liquefied natural gas shipments.
However, the two sides remain at odds on several major issues, with Trump saying on Sunday he had told his representatives not to rush into any agreement 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 it could take months for oil flows through the strait to normalise and for damaged oil and gas facilities to be repaired.
Meanwhile, the euro was up 0.37% at $1.1646, while the Japanese yen firmed to 158.85 per U.S. dollar in early trading as the safe-haven dollar gave up some of its recent gains.
Nasdaq futures were 0.89% higher and S&P futures were up 0.6%.
Nick Twidale, chief market analyst at ATFX Global, 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.
Japan's Nikkei was poised for a strong start to Monday's session.
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 re‑open 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.
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