Oil falls as US prepares to unveil new Iran sanctions

Oil prices declined by over $1 per barrel on Monday as investors realized gains before a new wave of sanctions from the United States on Iran, potentially further straining Middle East supplies. Brent crude futures dropped $1.23, or 1.3%, to $93.16, while US West Texas Intermediate crude fell $1.36, or 1.6%, to $85.70 per barrel.

Both contracts had seen double-digit weekly gains last week as US-Iran peace talks remained stalled, limiting oil exports through the strategic Strait of Hormuz, which traditionally carried a fifth of the globe's oil traffic. Treasury Secretary Scott Bessent was scheduled for a press conference at 2 p.m. Eastern Daylight Time (1800 GMT) to announce "the toughest sanctions in history" on Iran.

President Donald Trump had also vowed to impose penalties on Iran's trading partners. Analysts are divided on whether the economic isolation policy will prove fruitful, but if successful, Iran's retaliatory actions could escalate tensions in the region. Iran has denounced the looming sanctions, while President Masoud Pezeshkian appealed for a diplomatic resolution.

"Hardliners in Iran may prefer to continue fighting, while more moderate factions would favor de-escalation," commented IG markets analyst Tony Sycamore. Iranian crude offers to Chinese importers have dwindled, and prices have surged as the US blockade has curtailed Tehran's exports. However, Iran has granted Iraqi oil tankers passage through the Strait, according to state media, after Baghdad repeatedly requested permission.

Supply recovery from the Middle East may be slower than anticipated as the US-Iran standoff continues. Morgan Stanley analysts noted that crude supplies are tightening, with onshore inventories declining in China. They expect a reduced Middle East output, particularly from Iran, to persist, slowing their forecast for a resurgence in Middle East exports.