Oil plunges 7%, but Trump’s Iran pause may be setting up crude’s next rebound

Oil prices plunged as much as 7% on Monday after US President Donald Trump postponed an attack on Iran and backed negotiations aimed at reopening the Strait of Hormuz.

Brent crude pared its decline to trade 5.11% lower at $83.44 a barrel by 4.08am GMT, while West Texas Intermediate fell 5.79% to $79.77.

Both benchmarks had gained more than 20% in July as fighting and tanker attacks restricted shipping around the Gulf.

OPEC+ added to the bearish mood by approving a September production-quota increase of 188,000 barrels a day.

Yet the sell-off may be running ahead of events.

Tanker traffic remains subdued, attacks have continued and no agreement guarantees safe passage through one of the world’s key energy routes.

Oil's 7% plunge built on fragile peace hopes

Trump said Iran and other Middle Eastern governments had requested time to complete an agreement covering Tehran’s nuclear programme and the reopening of Hormuz.

His decision to cancel the strike encouraged traders to remove part of the geopolitical premium embedded in crude.

The OPEC+ increase supplied a second reason to sell.

However, the recent quota rises have delivered little additional oil because exports from the Gulf, Russia and Kazakhstan remain disrupted by the Iran and Ukraine wars.

Higher production targets matter less when barrels cannot reach buyers.

Tony Sycamore, an IG market analyst, told Reuters that the question was whether optimism would become another “rinse and repeat” episode.

Previous hopes of a settlement have faded when Iran maintained control of the strait as negotiating leverage.

Hormuz remains the fuse beneath crude

Shipping data offered little evidence that the supply problem had been resolved. Traffic through Hormuz slowed over the weekend, while the United Kingdom Maritime Trade Operations reported three tanker attacks since Saturday.

Before the war, the strait carried about one-fifth of global oil and liquefied-natural-gas supplies.

Its importance means vessel movements, insurance costs and loading schedules may provide a better test of de-escalation than political statements.

ING strategists Warren Patterson and Ewa Manthey warned in a recent market note that crude could be getting ahead of itself because tanker flows had not improved.

They argued that a sustainable decline required clarity that vessels could navigate the route without fear of attack.

The latest US pause removes the immediate threat of another strike, but it does not restore lost supply.

A rebound could be sharp, not permanent

The potential upside remains significant if disruption persists. JPMorgan estimates that every additional month of interrupted supply could add roughly $7 to $8 a barrel to Brent.

Goldman Sachs has outlined a scenario in which continued Hormuz disruption pushes Brent towards $120.

Those projections are risk cases rather than base forecasts. Goldman still expects tensions to ease, while expanding supply outside the conflict zone could place downward pressure on prices.

Anindya Banerjee, commodity research head at Kotak Securities, told The Economic Times that the direction of his longer-term outlook was unchanged, although its timing had shifted.

Higher OPEC+ targets, record UAE production and growing non-OPEC supply could cool crude into 2027.