Oil markets were jolted on Monday as Brent crude tumbled 5.7% to below $83 per barrel and West Texas Intermediate briefly slipped under $80, marking the sharpest single-day drop since the conflict began, echoing patterns seen in historical oil price shocks. The plunge came after Washington and Tehran announced a framework agreement over the weekend to reopen the Strait of Hormuz, the critical chokepoint that carries roughly one-fifth of the world's oil supply. Prices have now retreated more than 30% from the highs reached during the height of the hostilities, according to World Oil citing Bloomberg data.
What Happened
Brent crude dropped as much as 5.7% to below $83 per barrel on Monday, while West Texas Intermediate briefly fell below $80 for the first time since early April, according to World Oil citing Bloomberg data. The selloff accelerated after President Donald Trump announced over the weekend that the United States and Iran had reached a framework agreement to end their nearly four-month naval conflict and reopen the Strait of Hormuz. The two sides are expected to sign a memorandum of understanding in Switzerland on Friday, Pakistani Prime Minister Shehbaz Sharif confirmed, after his country helped mediate the talks.
The agreement represents a dramatic reversal from the height of the conflict, when Brent surged above $110 per barrel amid fears of a prolonged closure of the Strait. Prices have now retreated more than 30% from those peaks. U.S. energy shares fell in tandem, with the S&P 500 energy sector dropping 2.3% on Monday as traders priced in a faster-than-expected return of Persian Gulf supply. The national average gasoline price in the United States fell to $4.07 per gallon, the lowest since mid-April, according to AAA data reported by Spectrum News.
Why It Matters
The Strait of Hormuz handles roughly 20% of global oil consumption, making it the world's most critical energy chokepoint, as detailed in our Strait of Hormuz strategic importance explainer. Its closure since February had forced a costly rerouting of tankers, drained global inventories by an estimated 800 million barrels, and added a persistent risk premium to every barrel traded. Goldman Sachs now expects the waterway's flows to recover to pre-war levels by the end of July, a month earlier than its previous estimate, prompting the bank to slash its Q4 2026 Brent forecast to $80 from $90 and its 2027 forecast to $75 from $80.
Morgan Stanley analysts led by Martijn Rats project 50% of production back by September and 80% by December, slightly faster than their prior timeline. However, RBC Capital Markets struck a more cautious note, warning it will take months to reach pre-conflict output levels and that peak Hormuz flows may be in the rearview mirror. Even if shipping normalizes today, Westpac estimates inventories will continue falling through November before new Gulf supply arrives, keeping near-term volatility elevated.
What's Next
The immediate focus shifts to the Friday signing ceremony in Switzerland and the operational details that remain undisclosed. Mine-clearing operations in the Strait, vessel security certifications, and the gradual restart of shut-in oil fields will determine the pace of physical supply recovery. Goldman Sachs' Daan Struyven noted that while the deal brings forward the supply recovery timeline, the market has bought time rather than solved the inventory deficit. U.S. drivers should expect gas prices above $4 per gallon through at least early July as refiners work through existing stockpiles.
For global markets, the deal removes a major geopolitical overhang that had supported risk premiums across asset classes. Equity markets rallied on Monday, with the S&P 500 and Nasdaq hitting session highs as the energy sector's decline was offset by gains in rate-sensitive sectors. The Federal Reserve's inflation calculus also shifts: lower energy costs ease one of the stickiest components of CPI, potentially giving the central bank more room to maintain or cut rates later this year.
For more on energy markets, see our coverage of oil price crash impact on global economies and commodity market volatility this year. Investors tracking the sector may also review energy stocks Q2 earnings preview and how Fed rates interact with oil prices.