Oil prices sink as US-Iran pause fuels fresh Hormuz hopes

Crude prices soared on the flare-up, with Brent breaking back above $100 a barrel last week for the first time since May. [Getty] Oil prices tumbled Monday as a pause in tit-for-tat strikes between the United States and Iran boosted hopes for a return to their ceasefire and negotiations on reopening the Strait of Hormuz. After 13 days of attacks on sites in the Islamic Republic, the US held fire over the weekend and Donald Trump's UN envoy said the US president was "giving talks some space". Tehran in turn said it would stop its retaliatory attacks on regional neighbours, handing Gulf shipping and the oil industry a respite. The two resumed hostilities earlier this month, which derailed diplomatic efforts between Washington and Tehran. The conflict then expanded beyond the vital energy corridor and saw Iran-backed Houthi rebels in Yemen strike Saudi vessels in the Bab al-Mandeb Strait, a crucial passage into the Red Sea. Crude prices soared on the flare-up, with Brent breaking back above $100 a barrel last week for the first time since May. News that shipping continued in the Red Sea helped investors pare the gains on Friday. However, Trump's decision to hold off further strikes and Iran's claims Sunday that it had made progress in talks with Oman on management of the Strait of Hormuz provided some much-needed relief. The discussions focused on "common principles and operational mechanisms" for ensuring the safe passage of shipping through the strait while respecting the sovereign rights of the two states, Iran's foreign ministry spokesman Esmaeil Baqaei said. Meanwhile, a report said mediator Pakistan was looking at resuming US-Iran peace talks, following a push initiated by China. Both main oil contracts sank Monday, with Brent shedding more than seven percent at one point to briefly drop back below $90. "It looks as if developments in the Middle East have moved in a positive direction over the weekend, adding some credibility to the notion that oil above $100 a barrel seems to induce de-escalatory behaviour from both sides," wrote National Australia Bank's Sally Auld.