Oil Falls Below $100 as Iran Diplomacy Hopes Grow, Treasury Yields Slide

Oil prices fell to their lowest level in more than a week on Monday as investors priced in the possibility of diplomatic progress between the United States and Iran, while higher Saudi crude shipments through the Strait of Hormuz helped ease concerns about an immediate supply shortage.

Brent crude futures for November were down $1.78, or 1.71%, at $102.09 a barrel by 0655 GMT, after touching their lowest level since September 10. U.S. West Texas Intermediate crude for October, which expires on Tuesday, fell $1.97, or 1.96%, to $98.33 a barrel. WTI had already fallen 1.58% on Friday.

The move pushed WTI below the psychologically important $100 threshold as traders reduced some of the risk premium that had accumulated during the conflict between Washington and Tehran.

“It seems that a degree of risk premium is being removed from oil prices on hopes that a diplomatic path to de-escalate the US-Iran war may arrive this week,” said Tim Waterer, chief market analyst at KCM Trade.

“Whether that hope proves to be warranted or not is another question. Time will tell.”

The market is now closely watching the United Nations General Assembly in New York, where President Donald Trump and Iranian President Masoud Pezeshkian are both expected to be present. Trump has said he would be open to meeting Pezeshkian, while Iran has communicated conditions through mediators for a possible return to negotiations, according to Al Jazeera.

Any credible movement toward negotiations could further reduce the geopolitical premium embedded in crude prices. But the decline remains vulnerable to a reversal because military tensions have not subsided. Iran and the United States exchanged new threats on Sunday. Iran has also warned that it could deploy new weapons and strike locations that have not previously been targeted if Washington launches another offensive.

At the same time, Yemen’s Iran-backed Houthis have continued attacks on Saudi targets. The group said it had attacked sites in Riyadh and an Aramco facility in Yanbu, a major Saudi oil export hub.

The attacks have complicated Saudi Arabia’s efforts to reroute crude following disruptions to its East-West pipeline, which carries oil from the kingdom’s main producing region in the east toward the Red Sea. Yet the latest shipping data suggest Saudi Arabia is finding ways to keep oil moving.

Saudi crude flows through the Strait of Hormuz have risen sharply as the kingdom redirects barrels away from the disrupted Red Sea route. Satellite data cited by JPMorgan showed Saudi oil movements through the strait averaged 2.9 million barrels per day over the six days through September 18, compared with about 700,000 bpd in August.

That shift is significant because it shows how Saudi Arabia can partially compensate for the loss of its Red Sea export route by using the Gulf and Strait of Hormuz, even though that increases the kingdom’s reliance on a waterway at the center of the broader conflict.

JPMorgan analysts said total Middle East oil flows averaged 17.1 million bpd over the previous 10 days, only 6.1 million bpd below the 2025 average.

“Middle East oil flows remain surprisingly strong despite the disruption to Saudi Arabia’s East-West pipeline,” the analysts said.

The resilience of those flows is helping explain why crude prices have not risen further despite repeated attacks on energy infrastructure.

The market is therefore facing two competing forces. On one side is the possibility of diplomatic progress between Washington and Tehran, which could eventually restore disrupted trade flows and reduce the risk premium. On the other is the continuing threat to Saudi infrastructure and the possibility that the conflict could widen, potentially placing a larger share of Middle Eastern oil production and shipping at risk.

China has also entered the diplomatic effort. Beijing has asked Iran to help restrain the Houthis after Saudi Arabia appealed to China for assistance, according to three Iranian sources familiar with the matter.

The direction of oil prices will depend heavily on whether those diplomatic efforts produce measurable changes in the physical supply of crude. Markets can quickly remove a geopolitical premium when the probability of a settlement rises, but physical disruptions can have a more persistent effect if production, pipelines, refineries or shipping routes remain impaired.

Treasury Yields Slide

The decline in oil prices was also felt across financial markets.

U.S. Treasury yields moved lower in early trading, with the benchmark 10-year yield falling about three basis points to 4.967%. It had climbed to 5.041% last week, its highest level in 19 years. The two-year yield slipped about one basis point to 4.729%, while the 30-year yield declined three basis points to 5.306%.

European government bond yields also moved lower, with 10-year German bund and U.K. gilt yields each falling about five basis points.

The connection between oil and bonds has gained more attention as investors assess the inflation consequences of the conflict. A sustained oil-price surge could keep inflation elevated and complicate decisions for central banks that are already balancing economic growth against price pressures.

The Federal Reserve cut interest rates by 25 basis points last week, while the European Central Bank raised rates earlier this month and the Bank of England held its policy rate last week. Investors are now assessing whether further U.S. rate moves will be possible before the end of the year.

Lower crude prices provide some relief because energy costs feed directly into inflation and indirectly into transportation, manufacturing and consumer prices. A sustained decline could therefore give central banks greater room to focus on economic activity rather than another energy-driven inflation shock.

For now, however, the oil market remains hostage to events rather than fundamentals alone.

The sharp increase in Saudi crude flows through Hormuz suggests that the world’s largest oil exporter has been able to partially reroute supplies. But that solution shifts more Saudi exports onto a waterway whose security is itself closely linked to the U.S.-Iran conflict.

That leaves investors watching two numbers in particular: the amount of oil Saudi Arabia can continue moving through alternative routes and the extent to which diplomacy can reduce the risk of further attacks. If negotiations gain traction and Middle Eastern flows remain resilient, the premium built into crude prices during the conflict could continue to unwind. If talks fail or attacks intensify, the market could quickly reassess the supply risk.

For now, the fact that oil has fallen below $100 despite continued attacks suggests investors are placing greater weight on the possibility that the current disruption can be contained. The coming week at the United Nations could determine whether that assumption is reinforced or challenged.