Brent crude prices dropped sharply after the United States and Iran announced an interim agreement to end their months-long conflict, raising hopes that the Strait of Hormuz could reopen once the deal is formally signed on Friday.
The development eased fears of prolonged supply disruptions that had unsettled energy markets for months, prompting traders to reassess the risk premium built into crude prices.
Brent crude fell nearly 5% to around $83 a barrel after ending last week at a three-month low, while West Texas Intermediate traded near $80, Bloomberg reported.
US President Donald Trump said he had authorised the reopening of the strategic waterway and the removal of the US blockade on Iran, writing that he was authorizing the "toll free opening" of the Strait of Hormuz, along with ending the blockade of the Islamic Republic.
The precise details of the agreement remain unavailable, leaving markets and industry participants waiting for greater clarity.
Despite the optimism, analysts cautioned that reopening the Strait of Hormuz does not automatically mean a return to normal operations.
Clearing mines from the waterway and addressing Iran's plans for greater oversight of vessels using the route remain significant challenges.
