International oil prices on Monday recorded their largest single-day drop in nearly three months, as both the US and Iran released signals of willingness to negotiate through their respective official channels, causing the substantial geopolitical risk premium that had accumulated amid tensions over the Strait of Hormuz to rapidly unwind.
According to earlier reports, Trump has leaned toward giving diplomatic outreach to Iran more time and holding off on a new round of military action.
Media reports indicated that during a speech that day, he stated "they want to make a deal, and it's possible," and when pressed on whether he would resume military strikes against Iran after the midterm elections, he directly responded "no." US Vice President JD Vance subsequently said, "we have had multiple good conversations with the Iranian side," adding that "both the president and I feel quite optimistic about the prospects for reaching a negotiated solution."
Those remarks drove Brent crude futures down more than 6% on Monday, at one point falling to around $103 per barrel during the session. WTI futures fell more than 8.6% intraday, touching a low of $95.15 per barrel, breaking below the psychological $100 threshold, and eventually settling near $97. European benchmark natural gas futures plunged nearly 11% at one point during the session, while US heating oil futures also recorded their largest single-day decline in six months, with the entire energy market coming under pressure.
However, earlier reports also noted that Iran's Fars News Agency, citing informed sources, said that the exchange of information between the US and Iran through intermediaries is a routine practice, that there has been no new progress between the two sides, and that the Strait of Hormuz remains fully under Iran's military control. The uncertainty surrounding diplomatic prospects caused fluctuations in US equities by midday, with the Nasdaq 100 index at one point falling nearly 0.9%, though the oil price decline was not reversed as a result.
Simultaneous diplomatic signals from both sides trigger major market repricing
The trigger for this sharp oil price drop stemmed from the US and Iran successively releasing signals of willingness to negotiate within a short period.
According to CCTV News citing Iran's official news agency, Pezeshkian explicitly stated on Monday that Iran's Supreme Leader has authorized the government to take action on peace negotiations. Iranian Foreign Minister Abbas Araghchi, during a visit to Turkmenistan, also told the Islamic Republic News Agency (IRNA) that "given the highly sensitive nature of the current situation, consultations and negotiations have become extremely intensive," and said "we have put forward our conditions and proposals, and everything depends on Washington's political rationality."
The US side also simultaneously sent de-escalation signals. US Secretary of State Marco Rubio said last Saturday that no decision has yet been made on whether to launch a new round of strikes against Iran, and that Trump prefers to resolve the issue through diplomatic channels. Trump subsequently posted on social media:
"Oil prices dropped like a stone today, falling nearly $10 per barrel, setting a historic record, because people feel there will be no war with Iran."
UBS market analyst Nana Antiedu wrote in a briefing that "as expectations for diplomatic progress rise, the geopolitical premium embedded in October's crude oil rally has retreated," noting that Iranian and Qatari officials have held talks for three consecutive days on ending the conflict with the US and Israel.
Darrell Fletcher, managing director of commodity operations at Bannockburn Capital Markets, said, "a large amount of risk premium is dissipating from crude oil and European natural gas."
Technical factors also amplified the oil price decline. According to data from Kpler's Bridgeton Research Group, the long positioning ratio of trend-following commodity trading advisors (CTAs) in Brent crude dropped sharply from 100% at the open that day to 91%, and such algorithmic traders are known for exacerbating price volatility.
Iran sets conditions for reopening the strait, but major differences remain
Although diplomatic signals triggered a strong market reaction, substantive progress in negotiations remains limited, with significant differences in core demands between the two sides.
According to CCTV reports, Iranian Foreign Minister Araghchi said the proposal currently on the negotiating table is essentially the same as Iran's previously proposed "seven-day plan." The plan specifies Iran's conditions for reopening the Strait of Hormuz: if Iran's conditions are met, the Strait of Hormuz will open on the sixth day, and formal US-Iran negotiations will resume on the seventh day. Mediators including Qatar and Pakistan have conducted multiple rounds of consultations on this proposal and have put forward suggestions more feasible than the "seven-day plan."
According to CCTV International News, Iranian Foreign Ministry spokesman Baghaei said on Monday that the secretary of Iran's Supreme National Security Council will decide how to respond to the US letter based on national interests. Baghaei also emphasized that all indirect negotiations between Iran and the US through mediators are mainly based on Iran's "seven-day plan," which has been streamlined to be fully implementable within two days and "reflects Iran's goodwill and constructive attitude." He added, "only on this premise can we discuss arrangements for subsequent stages."
However, earlier reports stated that Iran's Fars News Agency, citing informed sources, said that the exchange of information between the US and Iran through intermediaries is a routine practice and that there has been no new progress through this channel; the Iranian side emphasized that before the US implements the seven conditions proposed by Iran, there will be no new progress and no new actions will be taken. The informed source also claimed that the Strait of Hormuz is completely under Iran's military control, and that no US vessels dare to approach within several hundred kilometers of the strait.
Ali Vaez, Iran project director and senior analyst at the International Crisis Group, pointed out that "there is nothing new here. The Supreme Leader has given the government a limited negotiating mandate with clear red lines," adding that "Tehran is willing to negotiate an end to the war, but it wants more than a pause before the next round of conflict — it wants a lasting peace that can restore its deterrence."
Behind Iran's tough stance, according to reports, Supreme Leader Khamenei has ordered senior military commanders to prepare for a new round of confrontation with the US and Israel and to expand Tehran's retaliatory options, in sharp contrast to the diplomatic progress signals sent by its top diplomat.
Israeli pressure, approaching midterm elections make negotiation prospects full of uncertainty
The complexity of this round of diplomatic maneuvering is also reflected in Israel's hardline position and the political timing of the US midterm elections.
According to CCTV News citing Israeli media, Trump and Israeli Prime Minister Netanyahu held a "direct and sharp" phone call on October 31. Sources said Netanyahu urged Trump to "immediately resume the war against Iran" after the November 3 midterm elections and expressed concern about the current US-Iran negotiations being mediated by Qatar. Trump at this stage wants to "let the negotiations fully unfold" and does not want Israel to interfere with the negotiation process. Sources revealed that if the negotiations fail, Trump's position could undergo a "significant change."
At the same time, high oil prices are putting pressure on the electoral prospects of the ruling Republican Party, giving Trump stronger short-term political motivation in his diplomatic statements. Monday's oil price plunge pushed WTI futures below the psychological $100 threshold, with less than 24 hours remaining before Tuesday's voting day — but analysts noted that this price drop came too late for consumers already suffering from high oil prices.
Supply buffers depleting faster, fundamental pressures unresolved
While diplomatic signals drove oil prices sharply lower, structural pressures on global oil supply have not faded, and analysts warned that the downside room for oil prices may be quite limited.
Sultan Al Jaber, CEO of Abu Dhabi National Oil Company (ADNOC), said that since shipping through the Strait of Hormuz was disrupted, global oil inventories have declined by nearly 1 billion barrels cumulatively. Diesel inventories in some markets have fallen to 35-year seasonal lows, while shipping and logistics costs as a share of per-barrel crude costs have surged from about 5% to 30%.
Goldman Sachs analysts had previously raised their December Brent crude forecast to $105 per barrel and expected an average price of $88 for the full year next year. Goldman Sachs noted in its report that "the Middle East situation, the Russia-Ukraine conflict, and broader geopolitical fragmentation together constitute a high risk of supply disruption."
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