Oil prices tumbled by more than 4 per cent as President Trump said Tehran was “seriously talking” with the United States, reducing the risk of America launching a military strike on Iran.
Brent crude, the global benchmark, was down $3.51 at about $66.08 a barrel by late afternoon in London on Monday, extending a sell-off from highs of more than $70 a barrel seen late last week.
The sell-off was compounded by a wider commodities rout led by precious metals, in part due to a stronger US dollar. A stronger dollar makes dollar-traded commodities such as oil more expensive for buyers in the rest of the world.
• Oil and gold prices jump as markets mull risk of US attack on Iran
Shares in Shell and BP, the two largest oil and gas groups listed in Britain, both fell as the companies prepare to report annual results in coming days. Analysts believe lower prices will force them to pare back shareholder returns by cutting the pace at which they are buying back their own shares.
Oil prices had rallied last week on fears of a US strike on Iran that Tehran had warned would escalate to a regional conflict.
Trump had repeatedly threatened Iran with military intervention if it did not agree to a nuclear deal or if it continued killing protesters. These threats had supported oil prices through January, analysts said.
However, Trump said at the weekend that Iran was “seriously talking”, while Tehran’s top security official, Ali Larijani, said arrangements for negotiations were under way. A deal could ease the geopolitical risk premium in markets.
“President Trump’s messaging has moved from punishing Tehran for its deadly crackdown on civil unrest to now seeking to secure a new nuclear agreement,” analysts at Panmure Liberum said. “There are also reports that there has been little maritime activity from the Iranian Revolutionary Guards in the Strait of Hormuz, easing fears of a possible blockade. Combined, this news sucks the geopolitical risk premium out of the oil market, and prices are dropping sharply.”
Shares in BP and Shell both suffered falls on news of the drop in oil prices
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Also over the weekend the Opec+ alliance of major oil producers, which includes Russia and Mexico, confirmed that it would keep its oil output unchanged for March, despite the recent rally in prices.
“This was widely expected and traders will be reassured that there hasn’t been any surprises from the cartel,” the Panmure Liberum analysts added.
Brent crude averaged just under $64 a barrel in the fourth quarter of last year, down from almost $75 a barrel in the fourth quarter of 2024, and more than $84 a barrel in the fourth quarter of 2023.
Oil markets are seen as well supplied and the International Energy Agency has forecast a surplus this year that could weigh on prices.
Analysts have predicted that both Shell and BP will curb the pace of their share buyback programmes as lower oil prices reduce their free cashflow. Shell is scheduled to report results on Friday, followed by BP next week.
President Trump at a meeting with top oil and gas executives in the White House early last month
SPLASH
Josh Stone, an analyst at UBS, said that “the weaker price environment is likely to drive a defensive tilt to stock selection in the near term, favouring those companies with the strongest balance sheets and lowest break-evens”.
“However, we would not expect this to last for long, with the market likely to eventually look through this and care more about which companies have the most growth potential and, more importantly, the most quality growth pipelines,” he added.