Oil prices fell sharply and gold surged on Monday after President Donald Trump said on Saturday that Washington and Tehran had 'largely negotiated' a memorandum of understanding on a peace deal that would reopen the Strait of Hormuz [Source: Business Recorder]. Reports said the framework agreement would include the reopening of the strait, with the United States in turn lifting a naval blockade of Iranian ports. On Sunday, however, the Trump administration played down hopes of an imminent breakthrough, with Trump posting on social media that negotiations were proceeding in an "orderly and constructive manner" but that he had instructed officials "not to rush into a deal" [Source: Al Jazeera]. An Iranian foreign ministry spokesperson said on Monday that both parties are negotiating the end of the war and that nuclear negotiations are off the table [Source: FXStreet]. Tehran has also said it will not take tolls from vessels traversing the strait [Source: Investing.com].

Brent crude futures for July fell to $97.94 a barrel as of 04:00 GMT on Monday, a decline of more than 5% on Sunday and roughly 9% below levels from a month ago. Spot gold rose 1.1% to $4,559.07 per ounce as of 0736 GMT, with US gold futures for June delivery gaining 0.8% to $4,559.80. By 12:50 ET, spot gold had extended gains to 1.4%, reaching $4,573.31 an ounce, while gold futures climbed 1.1% to $4,606.97 and silver spot prices jumped 3.3% to $78.03. Japan's Nikkei 225 (^N225) surged more than 3% in morning trading on Monday, hitting an all-time high after closing at a record peak on Friday. GIFT Nifty futures pointed to the Indian Nifty 50 (^NSEI) opening above its Friday close of 23,719.3, with GIFT Nifty at 23,952 as of 7:42 a.m. IST. The US Dollar Index retreated to the bottom of last week's trading range, while EUR/USD held around 1.1650 and GBP/USD traded near 1.3500.

Roughly 20% of the world's oil and liquefied natural gas typically passes through the Strait of Hormuz, but shipping traffic has virtually halted since US and Israeli-led strikes against Iran began on 28 February [Source: CNBC]. As of mid-May, the conflict was blocking the flow of around 14 million barrels of oil per day, according to the International Energy Agency [Source: Axios]. US average gasoline pump prices are about $1.50 per gallon above pre-war levels [Source: Axios]. India's Nifty 50 and Sensex had declined 5.8% and 7.2%, respectively, since the war broke out in late February. Secretary of State Marco Rubio said on Thursday that there were "good signs" that an agreement to end the conflict is in sight, though he warned any deal would be "unfeasible" if Iran pursues measures to permanently control shipping through the strait [Source: CNBC].

Analysts cautioned that even a deal would not immediately restore normal supply conditions. ClearView Energy Partners said in a client note that de-mining the strait, evacuating trapped tankers and restarting production could take weeks to months, with repairing damaged facilities and restoring pre-war output potentially requiring multiple calendar quarters to years [Source: Axios]. Sparta senior oil market analyst June Goh estimated that three to six months would be required to return conditions to the status quo, including the time needed to bring production and refineries back online [Source: Al Jazeera]. A recent MUFG note said energy executives warned that full normalization of Middle East oil supply may not occur until 2027 given the scale of disruptions caused by the conflict [Source: CNBC].

Sources: Business Recorder, Al Jazeera, Investing.com, FXStreet, Axios, CNBC