Global oil prices dropped sharply on Monday after signs emerged that the United States and Iran were moving closer to a potential peace agreement that could eventually reopen the Strait of Hormuz, one of the world’s most critical energy routes.

Brent crude futures fell $4.71, or 4.55%, to settle near $98.83 per barrel. US West Texas Intermediate crude also slipped heavily, dropping $4.57, or 4.73%, to $92.03 per barrel. During trading, both benchmarks touched their lowest levels since May 7.

The market reaction came after US President Donald Trump said Washington and Tehran had “largely negotiated” a memorandum of understanding aimed at reducing tensions and reopening the Strait of Hormuz. Before the recent conflict, the narrow waterway handled nearly one-fifth of global oil and liquefied natural gas shipments.

However, despite the optimistic tone, major disagreements remain between the two sides. Trump said on Sunday that he had instructed US negotiators not to rush into any final agreement with Iran, while restrictions and military blockades around the Strait continue to disrupt regional energy exports.

Strait of Hormuz Remains Key Concern

Energy analysts said the market is responding to hopes of de-escalation rather than any immediate breakthrough on the ground.

MST Marquee analyst Saul Kavonic said: “Notwithstanding all the caveats and risks that remain to the peace deal and Strait of Hormuz, there is now some light at the end of the tunnel, which will bring some near-term oil price relief.”

Analysts warned that even if a formal agreement is reached soon, restoring normal oil flows through the Strait could take months. Several oil and gas facilities in the region suffered damage during recent tensions, and infrastructure repairs may delay a full recovery in supply.

Strategists at the Commonwealth Bank of Australia said financial markets remain focused on two critical questions: when the Strait will fully reopen and how quickly energy production can return to pre-conflict levels.

“Under what conditions the Strait will re-open and how long it will take to repair production facilities and infrastructure to ramp up production of energy and other goods to pre-war levels,” the bank said in a market note.

Markets Shift Toward Risk Appetite

The easing concerns over supply disruptions also boosted investor confidence across broader financial markets. Nasdaq futures climbed 0.89%, while S&P 500 futures rose 0.6% in early trading.

Currency markets reflected a similar trend. The euro gained 0.37% against the dollar to trade at $1.1646, while the Japanese yen strengthened to 158.85 per US dollar as investors reduced demand for traditional safe-haven assets.

ATFX Global chief market analyst Nick Twidale said traders were cautiously optimistic but still waiting for concrete action.

“We will need to see an agreement out in place in the coming sessions as we know there are still some major sticking points,” he said.

Asian markets also reacted positively, with Japan’s Nikkei 225 expected to open stronger as investors anticipated reduced geopolitical pressure on global energy supplies.