Oil prices fell sharply on Monday as markets reacted to signs of progress in U.S.–Iran negotiations. Traders started pricing in the possibility that a deal could reduce the geopolitical risk premium and reopen shipping through the Strait of Hormuz, a key route for oil and LNG flows from the Gulf region.

July Brent futures dropped 5.7% to $97.69 a barrel, while U.S. West Texas Intermediate fell 6% to $90.85. Both benchmarks touched their lowest levels since May 7 earlier in the session. The move followed comments from Donald Trump that Washington and Tehran had largely negotiated the framework of a potential agreement.

Still, the market is pricing hope, not a finalized deal. Reuters noted that the two sides remain divided on important issues, including blockades and the conditions for restoring shipping. Even if a political agreement is reached, a return to normal flows could take time because of logistics, insurance and infrastructure constraints.

For investors, the oil market is shifting from a fear trade to a negotiation trade. If the agreement is confirmed, prices could face more downside. But any breakdown in talks could quickly bring the risk premium back into crude benchmarks.