Oil Prices Fall To Two-Week Low As US-Iran Peace Deal Hopes Ease Hormuz Supply Fears

KUALA LUMPUR,MAY,2026 – Oil prices fell to a two-week low on Monday as traders grew more optimistic that the United States and Iran may be moving closer to a peace deal that could eventually reopen the Strait of Hormuz and ease pressure on global energy markets.

Brent crude futures fell US$4.71, or 4.55%, to US$98.83 per barrel, while US West Texas Intermediate dropped US$4.57, or 4.73%, to US$92.03 per barrel. Both benchmarks touched their lowest levels since May 7 as markets reacted to signs of diplomatic progress.

The decline came after US President Donald Trump said Washington and Tehran had “largely negotiated” a memorandum of understanding on a peace deal that would include reopening the Strait of Hormuz. The waterway is one of the world’s most important energy routes and carried about one-fifth of global oil and liquefied natural gas shipments before the conflict.

Despite the market optimism, Trump also said he had instructed his representatives not to rush into any agreement with Iran. The two sides remain divided on several key issues, including the US blockade, Iran’s nuclear commitments and the conditions for reopening the strait.

The latest move marks a sharp reversal from earlier in the month, when oil prices were supported by fears of renewed US-Iran fighting and continued disruption around the Strait of Hormuz. On May 15, Brent settled at US$109.26 per barrel, while WTI closed at US$105.42, after both benchmarks climbed more than 3% on fears of further escalation.

Market sentiment shifted again after Trump suggested negotiations were entering the final stages. On May 20, Brent fell about 5.63% to US$105.02 per barrel, while WTI declined 5.66% to US$98.26, as traders began pricing in the possibility of a diplomatic breakthrough.

However, analysts warned that any peace deal may not immediately restore normal oil flows. MST Marquee analyst Saul Kavonic said there was “some light at the end of the tunnel,” but added that risks and caveats remain around the peace process and reopening of the strait. Reuters also reported that analysts expect it could take months for oil flows through Hormuz to return to normal and for damaged oil and gas facilities to be repaired.

The Strait of Hormuz remains the main focus for energy traders because it serves as a critical export route for major Gulf producers including Saudi Arabia, Iraq, Qatar and the United Arab Emirates. Any disruption there can quickly affect crude oil, liquefied natural gas, shipping costs and inflation expectations worldwide.

Earlier reports showed that vessel traffic through the strait remained far below pre-war levels. On May 20, three supertankers carrying about 6 million barrels of Middle East crude crossed the Strait of Hormuz after waiting in the Gulf for more than two months, but daily traffic was still well below the roughly 130 ships that crossed before the war.

The market is now balancing two competing forces. On one side, peace deal optimism is pushing prices lower because traders expect future supply risk to ease. On the other side, the physical oil market remains tight because shipping flows have not fully recovered and strategic inventories have been used to cover supply gaps.

Analysts at Citi previously warned that Brent could rise to US$120 per barrel in the near term if supply disruptions persist, while Wood Mackenzie estimated that crude could approach US$200 if the Strait of Hormuz remains largely shut until the end of the year.

For consumers and businesses, lower oil prices could eventually reduce pressure on fuel costs, freight rates and inflation. However, the relief may not be immediate because refinery supply chains, shipping schedules and damaged energy infrastructure may take time to stabilise.

The oil market has also become closely tied to broader financial sentiment. When crude prices fall on peace hopes, investors often become more positive on equities, currencies and inflation-sensitive assets. But any setback in US-Iran negotiations could quickly reverse that trend and send oil prices higher again.

For now, the latest decline suggests traders are giving more weight to diplomacy than supply disruption. Still, the outlook remains fragile because the Strait of Hormuz has not fully reopened, the US blockade remains in place, and no final agreement has been signed.

Overall, oil prices are likely to remain volatile in the coming days as markets watch for confirmation of a US-Iran agreement, details on the reopening of the Strait of Hormuz, and signs of whether Gulf energy flows can return to normal.