International oil prices plunge dramatically! Trump halts strikes against Iran and initiates negotiations. OPEC+ announces increased production, adding fuel to the fire.

On Monday morning in Asia, international oil prices plummeted sharply. This followed U.S. President Trumps announcement to cancel a large-scale military attack on Iran and his statement that negotiations aimed at reopening the Strait of Hormuz are set to resume soon. Meanwhile, OPEC+ agreed to a slight increase in production of about 188,000 barrels per day starting in September, officially completing a gradual rollback of a voluntary production cut that began last year. With the dual expectations of easing geopolitical tensions and normalizing supply, market panic gradually subsided. During the early Asian trading session, the October contract for Brent crude oil dropped as much as 7.3%, while WTI fell below $79 at one point, before narrowing its losses later. European natural gas prices also fell as much as 6.3% at one stage. Last month, due to the rapid escalation of conflicts in the Middle East, Brent oil prices experienced significant fluctuations within a wide range of about $32, increasing nearly a quarter over the month and marking the largest monthly gain since March. On Sunday, Trump stated that he had agreed to cancel the attack plan against Iran at the request of Middle Eastern allies, including Saudi Arabia, on the condition that a deal can be reached quickly, in order to reopen the Strait of Hormuz as soon as possible. He also added that new negotiations between the U.S. and Iran would begin on Monday. Iranian Foreign Minister Abbas Araghchi revealed the same day on social media that negotiations between Iran and Oman have entered the final stage, with the two countries discussing a new shipping route through the Strait. However, a spokesperson from Iranian state television noted that the ongoing discussions do not involve the opening or closing of the waterway itself. Since the U.S. and Israel launched attacks against Iran at the end of February, this ongoing conflict lasting over five months has resulted in numerous tankers being trapped in the Persian Gulf, with repeated disruptions to crude oil and liquefied natural gas shipments through the Strait of Hormuz, pushing international oil prices above $100 per barrel multiple times in spring. High oil prices rapidly permeated into refined oil products, causing gasoline, jet fuel, and diesel prices to surge globally. Drivers faced heavier fuel costs, airfares increased, and some countries even experienced fuel supply shortages, leading to rationing and temporary closures of schools and government institutions. Refiners and oil and gas producers reaped huge profits from high oil prices, recording significant gains in spring. Despite the glimmer of peace talks, the navigational risks in the Strait of Hormuz have not dissipated. The UK Maritime Trade Operations office reported on Sunday that a tanker near Oman encountered an explosion from close range, in addition to a liquefied natural gas vessel being struck by a projectile last week, indicating that this critical throat point, which normally handles about one-fifth of the world's oil and LNG, remains fraught with uncertainty. Meanwhile, Gulf oil-producing countries are actively seeking alternative export routes. The Iraqi Oil Ministry stated that Turkey and Iraq have agreed to extend a defunct oil pipeline agreement for one additional year, with the pipeline capable of exporting up to 750,000 barrels of crude oil per day. On the Kazakhstan side, the country's energy ministry announced that the Caspian Pipeline Consortium resumed normal operations starting August 1, maintaining a daily input of 100,000 tons of crude oil, as the impacts of prior temporary suspensions have gradually faded. However, the actual export pace still depends on whether tankers are willing to navigate the waters surrounding facilities in the Black Sea that are at risk of attacks, as a series of assaults on tankers loaded nearby have severely disrupted this key Kazakh oil export route. On the supply side, another decision made by OPEC+ on Sunday also impacted market nerves. Core member nations Saudi Arabia, Russia, Iraq, Kuwait, Algeria, Kazakhstan, and Oman approved an increase of nearly 188,000 barrels per day in September, which means the initially agreed voluntary production cut of 1.65 million barrels per day in 2023 has been gradually rolled back. Since the UAE withdrew from OPEC in May, this adjustment has only been made collectively by the aforementioned seven countries. Due to the interruption of Gulf exports caused by the war in Iran and the constraints on Russia and Kazakhstan's shipments due to the Russia-Ukraine conflict, the nominal increases in production have mostly remained on paper over the past months, imparting limited impacts on actual supply. The post-OPEC+ meeting statement did not provide clear guidance on production policies for the fourth quarter of this year, with the market generally expecting a possible pause in subsequent actions. Jorge Len, an analyst at energy consultancy Rystad, believes that OPEC+ has completed the reversal of voluntary cuts, with the next challenge being the potential supply surplus that could arise after the normalization of export flows. "After the restoration actions are completed, OPEC+ has little reason to hastily adjust supply further. Our basic assessment is that there will be a pause in production increases during the fourth quarter while preparing for negotiations on production quotas for 2027." Currently, the alliance still maintains a volume reduction measure of about 2 million barrels per day, involving most member countries, which has been implemented since 2022, and this will be enforced at least until the end of this year. OPEC+ is re-evaluating the production capacities of its members as a foundation for establishing the production baseline and quotas for 2027. Some countries, like Iraq, have expressed hopes of securing higher individual quotas to match their actual production capacities, making the negotiations for new quotas expected to be particularly difficult. The next meeting of the core seven nations is scheduled for September 6.