Oil prices extended their decline on Tuesday after renewed diplomatic efforts between the United States and Iran strengthened hopes that tensions in the Middle East could continue to ease, reducing fears of major disruptions to global crude supplies.
By 01:23 GMT, Brent crude futures were down 1.3% at $87.24 per barrel, while West Texas Intermediate (WTI) crude futures fell 1.2% to $81.61 per barrel. The decline followed Monday’s steep sell-off, when both benchmark contracts dropped by more than 9%.
The latest move lower reflects a broad reassessment of geopolitical risks after last week’s sharp rally, as traders reduced positions built on expectations of prolonged supply disruptions.
Diplomatic Momentum Pressures the Oil Market
After briefly climbing above $100 per barrel last week, Brent crude has retreated sharply as investors become increasingly optimistic that diplomatic efforts could prevent a wider regional conflict.
Market sentiment improved after President Donald Trump confirmed that the United States was holding negotiations with Iran following his decision to suspend additional military strikes and allow diplomacy to continue.
Iran also paused its retaliatory actions after the United States halted further attacks, while reports suggested China had been encouraging renewed dialogue between Washington and Tehran.
According to IG senior market analyst Tony Sycamore, the sharp decline in crude prices reflects growing confidence that a diplomatic solution may be emerging, reducing immediate concerns about threats to Middle East energy infrastructure.
He also warned that the situation remains uncertain, adding that investors still require stronger evidence of a lasting agreement before fully removing geopolitical risk premiums from oil prices.
Shipping Routes Remain a Key Risk
Despite the improvement in sentiment, Sycamore said tanker movements through the Strait of Hormuz remain below normal levels, while shipping activity through the Bab el-Mandeb Strait has yet to recover significantly.
He noted that negotiations aimed at securing navigation through the Strait of Hormuz will remain a major focus for energy markets. Any failure in talks or renewed attacks on Saudi export facilities could quickly drive crude prices higher again.
Iran and Oman continue discussions designed to restore normal shipping through the strategic waterway, which carries roughly 20% of global oil exports.
A successful diplomatic outcome could pave the way for broader negotiations between Washington and Tehran, although uncertainty continues to keep traders cautious.
Markets also welcomed the resumption of loading operations at Kazakhstan’s primary oil export terminal following disruptions caused by Ukrainian drone attacks, easing concerns over short-term crude supplies.
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