Oil prices fell by more than 2% on Monday as investors booked profits following a recent rally, with US President Donald Trump's decision to waive certain sanctions and tariffs on Russia raising the possibility of increased Russian fuel exports. However, continued attacks on commercial vessels in West Asia and disruptions to crude shipments through the Strait of Hormuz limited the prospect of a sustained decline in prices.
Brent crude futures dropped $2.29, or 2.08%, to $107.57 a barrel by 0619 GMT, after settling at their highest level since May 19 on Friday. US West Texas Intermediate (WTI) crude fell $1.95, or 1.92%, to $99.46 a barrel, following its highest close since September 17 on Friday.
The decline came after Brent briefly touched $110 a barrel on Friday for the first time since May, as escalating tensions and security threats in West Asia fuelled concerns over the safety of shipping routes and the availability of global energy supplies.
Trump's sanctions waiver offers limited relief
Trump signed an executive order on Friday waiving key sanctions and tariffs under legislation known as the Graham Act. He had signed the law last month following pressure from lawmakers seeking to increase pressure on Moscow over its war in Ukraine.
However, US Secretary of State Marco Rubio said the administration would take up to 60 days to assess the impact of the sanctions and tariffs on the global economy, leaving uncertainty over the scope and duration of the measures.
Priyanka Sachdeva, head of market insight at Phillip Nova, described the move as another attempt by Trump to contain oil prices ahead of the US midterm elections. She said the decision did little to address actual supply disruptions in the Strait of Hormuz, where attacks on oil tankers continue.
KCM Trade chief analyst Tim Waterer said the waiver could lead to an increase in Russian fuel exports, but mixed signals from Washington had created uncertainty in the market. He added that traders were unlikely to fully account for a sustained increase in supply until the details and duration of the waiver became clearer.
Russian fuel exports and Ukraine's concerns
The waiver followed a deal between Trump and Russian President Vladimir Putin to export diesel to the United States and other countries. Exports are expected to begin at around 2.3 million barrels this month before rising to approximately 7.6 million barrels a month.
Ukrainian President Volodymyr Zelenskiy said the US actions would hurt Ukraine, highlighting the geopolitical implications of Washington's decision to ease restrictions on Russian fuel supplies.
Although the potential increase in Russian exports could offer some relief to global energy markets, uncertainty over implementation and the continuing disruption of other supply routes have limited its immediate impact on prices.
West Asia attacks disrupt crude shipments
Supply concerns have intensified as attacks on commercial vessels have sharply reduced crude flows from the Gulf. According to analytics firm Kpler, the seven-day average of Gulf crude flows fell to around 8.5 million barrels per day last week, down from more than 20 million barrels per day in the preceding week.
Kpler also reported at least 10 confirmed incidents involving commercial vessels during the week, underscoring the risks facing energy shipments through the region.
The conflict could widen further as Egypt said it was prepared to provide Saudi Arabia with the support required to defend its security and stability against Yemen's Iran-aligned Houthi rebels.
The continued threats to shipping through the Strait of Hormuz remain a major concern for oil markets, as disruptions in the waterway can constrain exports and tighten global supplies even when additional oil becomes available from other producers.
Oil may remain between $100 and $110 ahead of US midterms
DBS expects crude prices to remain within a range of $100 to $110 a barrel as the US midterm elections approach. The bank said Iran and its regional allies could keep oil prices, and consequently domestic fuel costs, a key concern for American voters.
Suvro Sarkar, DBS's head of energy research, said Trump was attempting to use various measures to contain prices ahead of the elections without making any direct concessions to Iran.
Sarkar added that the measures introduced so far, including the waiver of Russian sanctions, were short-term fixes and were unlikely to have a significant structural impact on the global supply situation.
The market outlook therefore remains dependent on two competing developments: the possibility of increased Russian fuel exports following Washington's decision and the risk of further supply disruptions amid continuing hostilities and attacks on commercial shipping in West Asia.