Global oil prices tumbled more than 5% on Monday, hitting their lowest levels in nearly two weeks as investors reacted to growing optimism over a possible diplomatic breakthrough between the United States and Iran.

The sharp decline came as traders began reducing the geopolitical risk premium that had supported oil prices in recent weeks. Expectations that tensions could ease and shipping activity through the Strait of Hormuz may eventually normalize helped calm fears of major supply disruptions.

Both major oil benchmarks — Brent crude and U.S. West Texas Intermediate (WTI) — ended the session with significant losses.

Brent and WTI Record Steep Daily Losses

Brent crude dropped $5.26, or 5.28%, to settle at $94.92 per barrel, while U.S. WTI crude fell $5.54, or 5.73%, to $91.07 per barrel.

Earlier in the trading day, both contracts touched their lowest levels since May 7 as investors rapidly adjusted their positions in response to changing geopolitical developments.

The sell-off reflects how sensitive energy markets remain to any signs of progress in one of the world's most closely watched diplomatic relationships.

Diplomatic Optimism Changes Market Mood

The main catalyst behind Monday’s decline was renewed optimism surrounding negotiations between Washington and Tehran.

Reports suggested that discussions are progressing around a possible framework agreement that could eventually lead to the reopening and stabilization of the Strait of Hormuz — one of the most strategically important waterways in the global energy market.

Roughly one-fifth of the world’s oil and liquefied natural gas (LNG) shipments pass through the narrow strait, making any disruption there a major concern for traders and governments alike.

While markets welcomed the prospect of reduced tensions, analysts cautioned that several uncertainties remain.

Among the key issues still under discussion are:

  • Final terms of any potential agreement
  • Political approval from both sides
  • Security guarantees in the region
  • The timeline for restoring normal energy operations

For now, traders appear to be focusing on the possibility of improved stability rather than the challenges that may lie ahead.

Recovery of Energy Infrastructure Could Take Time

Even if a diplomatic agreement is reached, experts believe the return to normal oil flows will not happen overnight.

Years of tensions and recent disruptions have placed pressure on regional energy infrastructure, and restoring full operational capacity could require substantial time and investment.

Analysts point to several hurdles that may slow the recovery process, including:

  • Repairs to damaged oil and gas facilities
  • Regional security and stability concerns
  • Shipping and logistics adjustments
  • Higher insurance and transportation costs

These factors mean that while prices have reacted quickly to optimism, the physical oil market could take much longer to fully stabilize.

U.S. Oil Producers Continue Expanding Activity

Interestingly, the drop in crude prices has not slowed drilling activity in the United States.

According to the latest figures from oilfield services company Baker Hughes, the number of active oil and gas rigs in the U.S. increased by seven rigs to 558 last week.

The increase marks:

  • The fifth consecutive weekly rise
  • The highest rig count since June 2025
  • A level still around 1% lower than a year ago

The steady increase suggests that U.S. producers remain confident in long-term demand fundamentals, even as short-term market sentiment fluctuates.

Markets Remain Focused on Key Risks

Although Monday’s price drop was driven by hopes of easing tensions, analysts say the oil market remains vulnerable to rapid shifts in sentiment.

Several factors are expected to shape price movements in the coming months, including:

  • Progress in U.S.–Iran negotiations
  • Security and shipping conditions in the Strait of Hormuz
  • U.S. shale production trends
  • Global oil demand growth
  • Future production decisions by OPEC+

Any unexpected development in these areas could quickly alter the supply-demand outlook and lead to renewed volatility.

A Market Searching for Stability

For now, investors appear encouraged by the possibility of diplomatic progress and a more stable energy environment.

However, the oil market has repeatedly shown how quickly optimism can change. While easing geopolitical tensions could reduce supply risks and support global economic sentiment, much depends on whether negotiations translate into lasting agreements and tangible improvements on the ground.

Until then, traders are likely to remain cautious, balancing hopes for peace with the realities of an energy market that continues to face both political and structural challenges.

Monday’s sharp decline may signal improving sentiment, but the road to long-term stability is still far from certain.