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