Oil prices fall on US, Iran deal announcement

Crude oil prices fell over 4% to their lowest levels in over three months Sunday after the U.S. and Iran agreed to a ceasefire extension that could lead to the reopening of the Strait of Hormuz.

Why it matters: Severe restrictions on oil traffic through the strait since the conflict began in late February have created an unprecedented energy shock that's a drag on the global economy.

• The oil price spike caused U.S. gasoline prices to soar to their highest levels since 2022, adding to GOP political peril ahead of the midterm elections.

The latest: The global benchmark Brent crude is down 3.6% to $84.21 per barrel. It initially fell even more steeply before reversing some of the decline.

• WTI, the U.S. reference, is down over 4% to $81.38 per barrel.
• Sunday's decline follows prices that had already slid Friday on reports that an agreement was imminent.
• The apparent agreement could greatly expand tanker traffic through the narrow waterway that handles about a fifth of the global oil trade. Axios' Barak Ravid has the latest on the agreement.

Catch up quick: The memorandum of understanding would mark the biggest diplomatic breakthrough of the war and buy time to settle the hardest questions over Iran's nuclear program.

What we're watching: Average U.S. gasoline prices soared to a high of roughly $4.56 per gallon in May, but have retreated in recent weeks and now average $4.07, per AAA.

• That's still over $1 higher than pre-war levels at a time when affordability is front and center in midterm election battles.
• But prices will likely recede if crude oil prices — the largest variable in retail pump prices — continue to recede.

What's next: The disrupted market will take months to fully untangle, but the apparent deal could enable a major increase in tanker transit.

• But it's not clear how many ship owners and operators will quickly have confidence to move through the waterway.
• Plus, even if the strait is fully open, Persian Gulf oil producers that cut production when the main export route was cut off will need time to revive it.

Go deeper: Gas prices won't return to pre-war levels anytime soon