Prices reverse hard after morning spike
Oil gave back a chunk of its gains on Monday after reports emerged of a diplomatic framework that could halt fighting between the United States and Iran for 45 days.
Brent crude dropped to $106.69 per barrel, down 3.08% on the session after touching $111.79 earlier in the day. WTI fell to $111.95, surrendering a rally that had briefly pushed the US benchmark past $117.
The sell-off picked up speed in the afternoon as details of a proposed deal, referred to as the "Islamabad Accord" in diplomatic circles, filtered through to traders already on edge ahead of Trump's 8 p.m. Tuesday ultimatum.
What the Islamabad Accord would mean
Pakistan has been brokering backchannel talks between Washington and Tehran for several weeks, according to multiple reports. The proposed framework would pause hostilities for 45 days while negotiators work on a longer-term settlement that addresses the Strait of Hormuz blockade.
Iran shut the strait on March 4 after US and Israeli strikes under Operation Epic Fury. That closure locked roughly 17.8 million barrels per day of liquid fuels behind the chokepoint and sent Brent from around $65 to well above $110 in barely five weeks.
Any deal that reopens the waterway, even on a temporary basis, would release millions of stored barrels that Gulf producers have had no way to ship.
Traders position for a binary Tuesday
The market is staring at two radically different outcomes by late Tuesday evening.
If Iran and Washington sign the accord, analysts expect equities to surge and crude to fall sharply. Brent could lose $15 to $20 within hours as the war premium unwinds.
If talks fall apart and Trump follows through on his threats to destroy Iranian power plants and bridges, prices would likely spike past $120 again. The president told Fox News over the weekend that he is "considering blowing everything up and taking over the oil."
That uncertainty explains the wild swings. WTI traded in an $8 range on Monday alone, from $109.71 to $117.57.
OPEC+ hike offers no relief
OPEC+ raised production quotas by 206,000 barrels per day on Saturday, but that number barely dents the problem. It represents roughly 1% of the crude volume stuck on the wrong side of the Hormuz blockade. Saudi Arabia's East-West Pipeline can reroute about 7 million barrels per day to the Red Sea, but that still leaves a gap of around 11 million barrels daily.
Capital Street FX called the hike "academic" while the strait remains shut. Front-month WTI is trading nearly $17 above the second-month contract, a degree of backwardation that signals desperate near-term demand for physical barrels.
Gold tells its own story
Gold pushed to $4,716 per troy ounce on Monday, up $31.30, as investors hedged against the possibility that diplomacy collapses overnight. The metal has turned into a real-time gauge of how much confidence the market has in a peaceful resolution. Right now, not much.
What to watch
Everything hinges on the 8 p.m. ET deadline Tuesday. Iran's parliament speaker Mohammad-Bagher Ghalibaf pushed back hard against Trump's demands, saying Washington was doing Netanyahu's bidding rather than acting in its own interest. That leaves the diplomatic path looking shaky.
The US military posture tells a different story. Roughly 2,000 Marines are on station in the region, reinforcements are inbound, and a third carrier strike group is in position. Gasoline at the pump has climbed to $4.14 per gallon nationally, up from $2.98 before the conflict started.
Traders who took profits Monday may regret selling if the accord collapses. Those who held may regret not selling if a deal gets done. That kind of paralysis is exactly why liquidity has dried up and price swings have gotten so extreme.