Crude oil prices fell sharply Monday as senior U.S. and Iranian officials signal they are open to a diplomatic solution to the conflict that has disrupted energy markets for eight months.
Brent crude futures, the international benchmark, fell 7.7% to $104.66 a barrel as of 12:11 p.m. ET. U.S. West Texas Intermediate declined 7.3% to $96.50 per barrel.
U.S. Secretary of State Marco Rubio said President Donald Trump prefers not to use military force against Iran and would like to resolve the conflict diplomatically.
Trump has previously said that he will not attack Iran before the U.S. midterms. But the oil market had priced in the risk of a major military escalation after the elections.
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The president “hasn’t made a decision,” Rubio told reporters over the weekend.
“What the president expresses to you is incredible confidence that if we needed to do something militarily, we would have the ability to do it,” the secretary of State said. “But we would prefer to do it peacefully.”
Iran’s President Masoud Pezeshkian said Tehran is seeking to resolve problems through dialogue, according to state-owned Islamic Republic News Agency. Iran’s Supreme Leader Ayatollah Mojtaba Khamenei has granted the government certain authorities to do this, Pezeshkian said.
Iran’s foreign minister, Abbas Araghchi, said an agreement with the U.S. is possible if Washington “demonstrates goodwill” and is “truly seeking a peaceful solution,” according to IRNA.
Araghchi said mediators are discussing the proposal Iran made during the United Nations General Assembly in September. Tehran expects the U.S. to lift sanctions, reduce its military presence in the region to previous levels and lift the blockade, the foreign minister said.
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But Khamenei on Saturday called for Tehran’s armed forces to meet “any level or type of threat” with “an immediate, impactful, and geographically unrestricted response.”
Reports about diplomatic efforts will have a big impact on crude oil prices because much of the market’s recent gains were risk premium in anticipation of a possible escalation, according to Ryan McKay, director of commodity strategy at TD Securities.
“With that said, so long as there is no concrete conclusion to the war, and tanker and Houthi attacks remain prevalent, we do not anticipate a complete erosion of the risk premium via diplomacy headlines alone,” McKay said.
— CNBC’s Lim Hui Jie contributed to this report.
