Oil prices extended their sharp decline on Monday after recording their biggest weekly fall since April 2020, as traders weighed prospects for a diplomatic resolution to the US-Iran conflict against renewed attacks on Middle Eastern energy infrastructure, according to a report by Bloomberg.

Brent crude futures fell towards $97 a barrel after declining more than 16% last week, while West Texas Intermediate traded around $91. Prices have retreated sharply from their six-month highs in late October, following Democratic victories in the US midterm elections that raised expectations of reduced military escalation against Iran.

However, uncertainty remains over the prospects for a peace agreement. US Secretary of State Marco Rubio played down the likelihood of an imminent breakthrough, describing Tehran's negotiating demands as unacceptable, while President Donald Trump indicated that further military strikes were unlikely if talks made substantial progress.

Geopolitical risks remain elevated, with a tanker reportedly struck by an unidentified projectile near the Strait of Hormuz over the weekend and Iran-backed Houthi forces attacking Saudi Aramco facilities in Riyadh. Analysts at Rystad Energy warned that renewed escalation could quickly reverse much of the recent decline in crude prices.

Despite continuing disruptions, Persian Gulf oil exports have recovered towards pre-war levels, while OPEC production reached approximately 88% of February's output in October. Iranian production remains constrained by the US naval blockade, with Commonwealth Bank of Australia estimating that an agreement lifting restrictions could push Brent prices down to between $70 and $85 a barrel.