Oil slips over $2 as traders shrug off fresh US sanctions on Iran
Crude sold off sharply despite the ratcheting up of US pressure on Iran, underlining how much of the recent risk premium had already been priced in after two straight weekly gains of over 5%. Traders treated Bessent’s sanctions rollout as broadly telegraphed, with little fresh detail to justify holding onto recent length. Attention now shifts to whether Washington’s threat of secondary sanctions can meaningfully curb flows to Iran’s remaining buyers, chiefly China, since analysts flagged that outcome as the real swing factor for prices. Morgan Stanley’s more bullish Brent call for the fourth quarter suggests the market is still pricing meaningful upside risk even after Monday’s pullback, keeping the door open for renewed strength if enforcement escalates or Hormuz transit tightens further.
Oil dropped on profit taking even as Washington escalated its sanctions campaign against Iran, with traders unconvinced the latest measures change much on the ground.
Summary:
- Brent settled down around $2, or roughly 2.3%, to about $92; WTI fell a similar amount to near $85
- Treasury Secretary Bessent announced expanded secondary sanctions targeting entities and countries doing business with Iran, as the conflict nears its six-month mark
- US had earlier launched “Operation Economic Outcast," sanctioning nearly 60 Iran-linked entities, people and vessels across nuclear, missile, cyber and oil networks, with five sectors flagged for potential secondary sanctions
- Analysts said the announcement was largely as telegraphed, with the rally of the prior two weeks prompting profit taking rather than fresh buying
- Traffic through the Strait of Hormuz remained constrained, with fewer than 20 commodity vessels transiting over the weekend, though TotalEnergies said it continues to move crude profitably through the chokepoint
- Morgan Stanley raised its Brent forecast, projecting a peak of around $100 a barrel in the fourth quarter, while the IEA said it is not currently discussing a further strategic reserve release
Oil prices dropped more than $2 a barrel on Monday as investors locked in profits from recent gains and largely shrugged off a fresh round of US sanctions on Iran. Brent crude settled down around $2, or roughly 2.3%, to about $92, while US West Texas Intermediate crude fell a similar amount to near $85, according to Reuters. Both benchmarks had posted a second consecutive weekly gain last week, each rising more than 5%.
The sell-off came despite an escalation in US pressure on Tehran. Treasury Secretary Scott Bessent used a press conference to announce an expansion of secondary sanctions that Washington can impose on entities and countries maintaining business ties with Iran, warning the country faced a choice between normalcy or total isolation. The move followed the earlier launch of “Operation Economic Outcast," under which the Treasury sanctioned nearly 60 Iran-linked entities, individuals and vessels spanning nuclear, missile, cyber and oil networks, while flagging five sectors for potential further secondary sanctions and warning countries assisting Iran to cease doing so within a limited window.
Analysts said the latest announcement offered little that markets had not already priced in. One strategist noted there was not much new in Bessent’s remarks beyond what had already been signalled, adding that the market’s strong run over the prior week had set the stage for profit taking. Others argued the real test lies in how aggressively Washington enforces secondary sanctions against Iran’s remaining trading partners, particularly China, since anything short of a material cut in Chinese purchases would likely limit the impact on Iranian oil revenue.
Iran condemned the sanctions push, with President Masoud Pezeshkian calling for a diplomatic solution, while Pakistan’s army chief held mediation talks in Tehran ahead of the announcement. Shipping through the Strait of Hormuz remained constrained, with fewer than 20 commodity vessels transiting over the weekend, though TotalEnergies said it continues to move crude profitably through the strait despite higher costs, helped by steep discounts from producers. Iraq’s SOMO and QatarEnergy both offered crude for loading inside the strait.
Looking ahead, Morgan Stanley lifted its Brent forecast to a fourth-quarter peak of around $100 a barrel, while the IEA said it is not currently discussing a further release from strategic reserves. With Oman’s foreign minister due in Tehran to discuss Hormuz security and reports of Trump enlisting Pakistan’s help to revive US-Iran talks, the market’s focus stays squarely on whether diplomacy or further escalation defines the path forward.
This article was written by Eamonn Sheridan at investinglive.com.