Oil slips to two-week low as US and Iran seen moving closer to deal

Oil prices fell about 5% to two-week lows on Monday as optimism grew that the United States and Iran were moving closer to a peace deal, even though they remain at odds over key issues such as blockades on the Strait of Hormuz.

Brent crude futures LCOc1 were down $5.04, or 4.9%, at $98.50 a barrel at 1327 GMT and U.S. West Texas Intermediate CLc1 futures were down $4.82, or 5%, at $91.78. Both contracts traded at their lowest since May 7.

U.S. President Donald Trump said on Saturday that Washington and Iran had largely negotiated an understanding on a peace deal that would reopen the Strait of Hormuz trade route that carried a fifth of global shipments of oil and liquefied natural gas before the conflict.

However, several difficult issues remain, with Trump saying on Sunday that he had told his representatives not to rush into any deal.

“The underlying supply shortfall of 10-11 (million barrels per day) of crude oil does not go away immediately and will see markets still drawing inventories until Middle Eastern crude production is back online, which is months away,” said Sparta Commodities analyst June Goh.

Iran’s top negotiator and its foreign minister were in Doha for talks with Qatar’s prime minister on a potential deal with the U.S., an official briefed on the visit told Reuters on Monday, after Washington and Tehran played down hopes for an imminent breakthrough.

Iran’s foreign ministry spokesperson Esmaeil Baghaei said on Monday that Iran was negotiating an end to the war and was not currently discussing nuclear issues.

Analysts expect a return to normal oil flows through the strait will take months, while damaged oil and gas facilities are repaired.

“We continue to believe that the key factors for the oil market to watch should be the physical oil flows; and so far, flows through the Strait remain restricted,” said UBS analyst Giovanni Staunovo.