Iran declared it would cease its attacks as long as the United States did the same, amid U.
S. military concerns about ammunition shortages.
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Despite this, Yemen's Iran-aligned Houthis attacked Saudi oil facilities along the Red Sea, threatening a key global oil trade route.
Sally Auld, group chief economist at NAB, said, "Net, it looks as if developments in the Middle East have moved in a positive direction over the weekend, adding some credibility to the notion that oil above $100 a barrel seems to induce de-escalatory behaviour from both sides."
The lull in fighting over the Strait of Hormuz caused Brent crude to fall 4.7% to $92.27 a barrel, while U.
S. crude dropped 5.0% to $84.89.
The oil price retreat eased inflation concerns and slightly reduced the chances of Federal Reserve rate hikes ahead of its Wednesday meeting.
Goldman Sachs analysts noted, "Investors see the outcome of the July meeting as unusually uncertain, likely because the Fed has been split recently, Warsh's own position remains unclear, and some of the re-escalation with Iran occurred during the blackout period."
"There will likely be at least one dissent in favour of a hike, but most voters appear unlikely to push for a move this week after the softer June inflation data," they added.
The Bank of England and Bank of Japan are expected to hold steady during their upcoming meetings while monitoring inflation risks.
