Crude prices soften following Iran's announcement that indirect talks with the US are ongoing via intermediaries

Oil prices retreated from their highest level in a month on Monday, following Iran's announcement that diplomatic talks with the United States were ongoing through mediators, despite escalating conflict in the Middle East.

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This development came after crude oil prices surged over the past week, driven by fears of a prolonged disruption in the Strait of Hormuz, which handles around a fifth of the world's seaborne oil, as tensions between Washington and Tehran intensified.

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Both Brent crude and West Texas Intermediate extended their gains, building on the more than four percent increase they experienced at the end of last week, with Brent trading at $89 a barrel after briefly surpassing $91, its highest price since June 11.

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Iranian foreign ministry spokesman Esmaeil Baghaei revealed that the country had received messages from the US through mediators, indicating that diplomatic efforts were still active, despite the exchange of strikes between the two nations.

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Baghaei stated, "We have received messages — without going into details — but the main point is that the diplomatic apparatus has been active in recent days and ideas have been conveyed to us by certain mediators," during a news conference in Tehran.

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The rise in crude prices has rekindled concerns about elevated inflation and its potential impact on interest rates, but some analysts argue that the broader economic landscape is becoming more supportive, according to Stephen Innes of SPI Asset Management.

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Innes noted, "Markets are once again being forced to trade two seemingly contradictory stories on the same screen," as the increase in oil prices has introduced a fresh geopolitical risk premium into markets.

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He suggested that the energy shock may not necessarily trigger a new cycle of broad-based inflation, given the cooling underlying US inflation and softer labor market, but instead, the biggest risk would come if elevated oil prices persist long enough to erode household spending and weigh on economic growth.

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In Asian markets, the performance was mixed, with Chinese markets outperforming as investors anticipated further measures from Beijing to support the economy, following last week's economic data.

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Hong Kong's market added more than two percent, while Shanghai ended the day in positive territory, and Manila and Jakarta edged higher, although caution prevailed in other markets.

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Seoul's market closed 4.46 percent down, while Taipei, Sydney, Mumbai, Bangkok, Singapore, and Kuala Lumpur also experienced declines, and London's market was in the red.

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Paris and Frankfurt, however, edged up, following a weak session on Wall Street, where all three major indexes finished lower on Friday as investors continued to rotate out of technology shares while monitoring developments in the Gulf.

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The launch of Chinese startup Moonshot AI's model, which experts said could rival some of the more advanced offerings from US labs, added to concerns about the tech sector, but markets appeared to be taking a more measured view, according to Chris Weston, head of research at Pepperstone.

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Weston stated, "Having had the weekend to digest the launch of Moonshot's Kimi K3 model and its potential implications for the pricing power of the major US AI labs… markets appear to be taking a more measured view."

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Gold prices eased by 0.25 percent, despite the geopolitical uncertainty, while silver advanced by a little over one percent.

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Key figures around 0810 GMT included Brent North Sea Crude, which was up 0.87 percent at $88.87 per barrel, and West Texas Intermediate, which was up 0.46 percent at $82.87 per barrel.