Oil prices slipped to a three-month low on Monday after US President Donald Trump and Iran's deputy foreign minister said they had reached an initial deal to end the war and to resume traffic through the Strait of Hormuz.

Brent crude futures fell $4.16, or 4.8%, to $83.17 a barrel by 13:15 GMT and US West Texas Intermediate was at $80.49, down $4.39, or 5.2%.

Both contracts fell to their lowest levels since March 10 on Monday after tumbling more than 3% on Friday.

The US and Iran will sign a memorandum of understanding in Switzerland on Friday, said the prime minister of Pakistan, whose country has served as a mediator. Trump said on Sunday that the Strait of Hormuz would be open "toll free" and that a US naval blockade of Iranian ports would also end.

Iran's semi-official Mehr news agency said the draft deal called for reopening the Strait of Hormuz within 30 days under Iranian arrangements.

"It will take time for oil to approach the pre-crisis level of 20-million barrels a day sailing through this chokepoint. Estimates of the full resumption of traffic vary from weeks to months," said Tamas Varga, analyst at PVM Oil Associates.

"Financial investors are, therefore, merely borrowing future physical supply, hence the current cheapening of oil prices. The slow resumption will possibly result in a supply deficit throughout 2026."

The world has lost millions of barrels of oil and gas supply since the war closed the Strait of Hormuz, a chokepoint for a fifth of the world's oil and liquefied natural gas supplies, for more than three months.

Investors are also watching cautiously how quickly Middle Eastern producers can resume oil production and exports following damage from the war and whether more ships will enter the region.

"If we look at the pre-war range being around $60 to $70 in Brent, I would expect that the new price floor has moved higher from 60 back in the December/January window, perhaps as high as $75 or $80 going forward, with some risk to the upside," Saxo Bank analyst Ole Hansen said.

Lower oil inventory levels, a slower process to restart production and the refilling of strategic oil inventories should support oil prices in the longer-term, said UBS analyst Giovanni Staunovo.

Iran's deputy foreign minister, Kazem Gharibabadi, said a more expansive agreement would be negotiated during a 60-day ceasefire period.

However, Israeli Defense Minister Israel Katz said the military would remain in security zones in Lebanon, Syria and Gaza indefinitely in order to protect the border and Israeli settlements. The fate of Iran's nuclear program, another thorny issue, will also be addressed in those later talks, sources previously told Reuters.

David Jorbenaze, global oil market leader at ICIS, sees a "partial recovery in traffic within weeks of a credible deal and meaningful commercial normalisation in the four- to six-month range."

"Full pre-conflict traffic volume is realistically a 2027 story, and only if the agreement holds without incident and production recovers at pace."

E4 nations, which include the UK, France, Germany and Italy, said on Sunday the countries were prepared to lift sanctions on Iran in response to steps on its nuclear programme.