Oil prices tumble on hopes for US-Iran summit, Saudi supply recovery

Global oil prices fell sharply Monday after hopes grew that the United States and Iran could hold a high-level meeting on the sidelines of the UN General Assembly, while Saudi Arabia's disrupted crude exports showed signs of partial recovery.

Brent crude for November delivery settled at $100.34 a barrel on the London ICE Futures Exchange on Monday (local time), down 3.4 percent from the previous session — its lowest closing level since Sept. 8, when it finished at $97.92. The single-day decline was also the steepest since Aug. 25.

West Texas Intermediate for October delivery dropped 4.5 percent to $95.78 a barrel on the New York Mercantile Exchange, likewise its lowest close since Sept. 8, when WTI ended at $93.03.

The biggest driver of the selloff was growing optimism that a diplomatic breakthrough between Washington and Tehran could be within reach.

US President Donald Trump said Monday that a meeting with Iranian President Masoud Pezeshkian on the sidelines of the UN General Assembly was "probably" possible. Trump is scheduled to address the assembly Tuesday, with Pezeshkian set to speak Wednesday. Markets are closely watching whether the two leaders will hold the first summit-level talks since the two countries went to war.

Trump has not abandoned military pressure on Iran. In a Fox News interview, he raised the prospect of a large-scale strike, saying the question was "when do you blow up the whole country." Even so, oil markets chose to price in the possibility of a diplomatic resolution rather than an imminent return to military escalation.

Tamas Varga, an analyst at oil brokerage PVM, said investors were waiting to see whether a breakthrough could emerge from peace negotiations this week.

Expectations that Saudi Arabian crude exports would recover also weighed on prices. Shipments had been disrupted by Houthi attacks and other factors, but loadings through the Persian Gulf have recently begun to pick up again.

According to tanker-tracking data, Saudi state oil company Aramco loaded 14 million barrels of crude onto seven very large crude carriers in the Persian Gulf on Monday. Saudi crude passing through the Strait of Hormuz over the past six days averaged an estimated 2.9 million barrels per day.

Analysts cautioned, however, that it is too early to conclude that oil prices have entered a sustained downtrend. If US-Iran negotiations collapse or military conflict flares up again, supply concerns could resurface rapidly.

Jay Woods, an analyst at Freedom Capital Markets, said diplomatic signals "can ease fears of higher oil prices and inflation, but further escalation and localized export disruptions could push crude prices back up and complicate the Federal Reserve's next move."

Oil price movements are a key variable for the Federal Reserve's monetary policy at a time when it has been raising its benchmark interest rate to combat inflationary pressures. If prices stabilize after surging since the outbreak of the Iran war, it could ease inflation concerns in the United States — but a renewed escalation that sends prices back up would add to the pressure on the Fed to keep tightening.