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Oil prices extended their losses on Monday after a pause in U.S.-Iran hostilities gave markets a reason to price in a calmer near-term outlook.
De-escalation, the pulling back from active military confrontation, tends to reduce the risk premium that conflict adds to crude prices, because a quieter situation lowers the immediate threat of supply disruption.
How a pause in fighting moves crude Risk premium, in oil markets, is the extra cost buyers accept to hedge against the chance that conflict cuts off supply. When hostilities slow, that hedge becomes less urgent.
Traders unwind their protective positions, and prices fall. Lower prices favor buyers of crude and squeeze revenues for producers. Monday's move reflected a shift in expectations, not a formal agreement.
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