Oil prices have dropped to a three-week low after Donald Trump said he had called off strikes on Iran and that Middle East allies had outlined a deal to end the war.

The announcement from the US president sparked fresh hopes among investors that the Strait of Hormuz transit route could be reopened.

Brent crude oil fell below 83 US dollars (£61.73) a barrel on Monday, down nearly 6%.

At one stage it fell to a low of about 81.50 dollars (£60.61) a barrel – the lowest level in three weeks.

Oil prices have been volatile in recent weeks, swinging higher in response to renewed tensions in US-Israel’s war with Iran, then drifting lower as leaders signal towards peace talks rekindling.

Brent crude briefly tipped above 100 US dollars (£74.37) again late last month after fresh attacks in the Red Sea threatened to escalate the conflict further.

Mr Trump announced in a social media post on Saturday evening that Middle East allies had reached the “perimeters” of a deal to end the five-month war.

He reiterated the emerging deal would include a reopening of the Strait of Hormuz and would resolve US concerns about Iran’s nuclear programme.

Iran has repeatedly attacked vessels attempting to transit through the Strait of Hormuz without its authorisation as part of the conflict.

About a fifth of the world’s oil and gas flowed through the critical waterway before the war effectively cut off most transit routes.