International oil prices saw a dramatic drop early Monday in Asian trading, following US President Donald Trump's decision to cancel a large-scale military strike against Iran and announce the resumption of negotiations aimed at reopening the Strait of Hormuz. Adding to the pressure, OPEC+ approved a modest production increase of approximately 188,000 barrels per day starting in September, completing the gradual rollback of voluntary cuts that began last year. The combination of easing geopolitical tensions and a normalized supply outlook quickly cooled market panic.
In the early Asian session, the October Brent crude contract fell as much as 7.3%, while West Texas Intermediate (WTI) dipped below $79 before slightly recovering. European natural gas prices also dropped by 6.3% at one point. Last month, amid an escalation in Middle East conflicts, Brent crude experienced wide swings within a roughly $32 range, ultimately rising nearly a quarter for the month, marking its largest monthly gain since March.
Trump stated on Sunday that, after pressure from Middle Eastern allies including Saudi Arabia to seek a deal, he agreed to cancel the attack plan against Iran "provided a quick agreement can be reached" to reopen the Strait of Hormuz as soon as possible. He added that new US-Iran talks would begin on Monday. Iranian Foreign Minister Abbas Araghchi also revealed on social media that negotiations with Oman were in their final stages, with the two countries discussing a new shipping route through the strait. However, an Iranian state television report, citing a department spokesperson, said the discussions did not involve the opening or closing of the waterway itself.
Since the US and Israel launched attacks on Iran in late February, the over-five-month conflict has trapped numerous oil tankers in the Persian Gulf, repeatedly disrupting the transport of crude oil and liquefied natural gas (LNG) through the Strait of Hormuz. This drove international oil prices above $100 per barrel several times in the spring. High oil prices quickly filtered into refined products, pushing up gasoline, jet fuel, and diesel costs globally, increasing fuel bills for drivers, raising airfares, and even causing fuel shortages in some countries, leading to rationing and temporary closures of schools and government offices. Refiners and oil and gas producers, meanwhile, reaped significant profits during the spring due to the high prices.
Despite the glimmer of peace talks, the risk of navigating the Strait of Hormuz remains. On Sunday, the UK Maritime Trade Operations Office reported a tanker near Oman experienced a close-range explosion, and an LNG carrier had been hit by a projectile last week, highlighting the ongoing uncertainty at this chokepoint, which normally handles about one-fifth of the world's crude oil and LNG. Meanwhile, Gulf producers are actively seeking alternative export routes. Iraq's Oil Ministry stated that Turkey and Iraq have agreed to extend a previously inactive oil pipeline agreement for one year, which could carry up to 750,000 barrels of crude oil per day. In Kazakhstan, the Energy Ministry announced that the Caspian Pipeline Consortium resumed normal operations on August 1, with daily crude oil intake maintained at 100,000 tons, gradually offsetting the impact of previous temporary suspensions. However, actual export volumes still depend on whether tankers are willing to risk entering waters near Black Sea facilities, as a series of attacks on tankers loading in the area has severely disrupted this key export route for Kazakh crude.
On the supply side, another OPEC+ decision on Sunday also captured market attention. Core members Saudi Arabia, Russia, Iraq, Kuwait, Algeria, Kazakhstan, and Oman approved a nearly 188,000 barrel-per-day production increase for September, completing the gradual rollback of the 1.65 million barrel-per-day voluntary cuts agreed upon in 2023. Since the UAE exited OPEC in May, this adjustment was made solely by these seven countries. Due to disruptions in Persian Gulf exports caused by the Iran war and constraints on shipping from Russia and Kazakhstan due to the Russia-Ukraine conflict, the nominal production increases over recent months have largely remained on paper, having a limited impact on actual supply. The OPEC+ statement after the meeting provided no clear guidance on fourth-quarter production policy, with the market generally expecting a pause. Rystad Energy analyst Jorge Leao believes that OPEC+ has completed its voluntary cut reversal, and the next challenge is a potential supply surplus once export flows normalize. "After completing the recovery actions, OPEC+ has little reason to rush further supply adjustments. Our base case is a pause in production increases in the fourth quarter while preparing for negotiations on 2027 production quotas," Leao said. Currently, the alliance still maintains a separate layer of about 2 million barrels per day in cuts, implemented since 2022 and involving most members, which will remain in place at least until the end of this year. OPEC+ is reviewing the production capacities of its members to serve as a basis for setting 2027 baseline production levels and quotas. Some countries, like Iraq, have indicated they want higher individual quotas to match their actual production capacity, making the new quota negotiations expected to be particularly difficult. The next core seven-country meeting is scheduled for September 6.
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