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Oil prices fell by more than $1 a barrel on Monday as investors booked profits ahead of an expected announcement from Washington on additional sanctions against Iran, which could further disrupt supplies from the Middle East.
US Treasury Secretary Scott Bessent, who is scheduled to hold a press conference at 2 p.m. EDT (1800 GMT) on Monday, has threatened to impose "the toughest sanctions in history" on Iran. US President Donald Trump has also threatened sanctions against countries trading with Iran.
Crude oil price on August 24
Brent crude futures were down $1.9, or 2%, at $92.60 a barrel, while US West Texas Intermediate crude fell $1.76, or 2%, to $85.20 a barrel.
Both benchmarks had posted their second straight weekly gains last week, rising more than 5%, after peace talks between the US and Iran reached a stalemate. The impasse has limited oil shipments through the Strait of Hormuz, through which a fifth of the world's oil supply previously transited.
"It is unclear whether U.S. policy to economically isolate Iran will prove effective," Vivek Dhar, a commodities analyst at Commonwealth Bank of Australia, wrote in a note. He said that if the measures succeed as intended, Iran's ability to respond through increased violence would become a growing risk for energy markets.
Also read: 'Entering the endgame': US Treasury Secy Bessent says 'economic D-Day' begins against Iran
Iran has criticised Washington's plans for new sanctions, while President Masoud Pezeshkian has called for a diplomatic solution.
"The more pragmatic members of the Iranian leadership would prefer to de-escalate but the hardliners would probably prefer to fight to the bitter end," IG Markets analyst Tony Sycamore said. "I think by the end of this week we will have a good idea which side of the Iranian leadership has the upper hand."
Offers of Iranian crude to Chinese buyers have fallen, while prices have risen as the US blockade has reduced Tehran's shipments, according to trade sources.
Iran, however, has allowed a number of Iraqi oil tankers to pass through the Strait of Hormuz after repeated requests from Baghdad, Iran's state news agency IRNA reported on Saturday.
The length of the disruption will be a key factor for crude prices. JPMorgan estimates that every additional month of disruption could add around $7 to $8 a barrel to Brent prices. If the disruption lasts for three months, the bank expects average monthly Brent prices to reach around $114 a barrel.
Goldman Sachs has also warned that Brent could rise to $120 a barrel if shipping disruptions through the Strait of Hormuz, the world's most important oil transit route, continue.
Read more:Iran's four-decade war planning makes it difficult for US to decimate it: Expert
At the same time, Goldman Sachs expects tensions in the Middle East to eventually ease under its base case. The bank forecasts Brent to average $80 a barrel in the fourth quarter and $75 a barrel next year. It said risks remained tilted to the upside, with disruptions through the Strait of Hormuz and the Red Sea potentially lasting longer than expected.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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