Oil prices moved lower during Tuesday’s Asian session as concerns over supply disruptions linked to the U.S. blockade of the Strait of Hormuz eased, with markets encouraged by signs that diplomatic talks between Washington and Tehran could resume.
Brent crude futures fell by 76 cents, or 0.8%, to $98.57 by 06:01 GMT, while U.S. West Texas Intermediate (WTI) crude dropped $1.63, or 1.65%, to $97.45.
Both benchmarks had rallied in the previous session, with Brent gaining more than 4% and WTI nearly 3%, after the U.S. military initiated a blockade of Iranian ports. Oil prices had surged by around 50% over the past month, marking a historic jump.
On Monday, the U.S. military said the blockade would extend beyond the Strait of Hormuz to include the Gulf of Oman and parts of the Arabian Sea. Ship-tracking data also showed that two vessels reversed course as the restrictions came into force.
In response, Iran warned it could target ports in countries bordering the Gulf, following the collapse of weekend negotiations in Islamabad that were aimed at resolving tensions over the waterway, which typically handles about one-fifth of global oil and gas shipments.
Despite the breakdown in talks, investors appeared to bet on a diplomatic resolution, even as the U.S. pressed ahead with its blockade of Iranian ports.
Sources told Reuters that both sides remain open to dialogue, with a U.S. official noting there has been forward movement toward a potential agreement.
U.S. President Donald Trump also said Iran is seeking to make a deal, though he ruled out any arrangement that would allow Tehran to develop a nuclear weapon.
“While supply can restart within days to weeks, restoring output is likely to take months, even for undamaged assets,” Commonwealth Bank of Australia said in a note on Tuesday.
The bank added that resuming traffic through the Strait would be the “first domino that needs to fall”.
“Despite the breakdown of peace talks in Pakistan over the weekend, Trump has managed to take some steam out of the oil price, again dangling the carrot of a possible deal,” said Tim Waterer, chief market analyst at KCM Trade.
People familiar with the negotiations said communication channels between Iran and the U.S. remain open, while Pakistan’s Prime Minister Shehbaz Sharif reiterated efforts to reduce tensions.
Analysts at ANZ estimate that around 10 million barrels per day of crude supply has effectively been removed from the market, with a prolonged U.S. blockade potentially cutting a further 3 million to 4 million barrels per day of shipments.
“The oil market no longer needs a worst-case escalation to justify higher pricing,” ANZ said in a note to clients. “Tight balances alone are sufficient to sustain the price of Brent near or above recent threshold levels.”
Some NATO allies, including Britain and France, have held back from joining the blockade, instead urging that the crucial shipping route be reopened.
U.S. Energy Secretary Chris Wright suggested oil prices could peak in “the next few weeks” once normal shipping resumes.
Meanwhile, the International Monetary Fund, World Bank, and International Energy Agency have warned against stockpiling energy supplies or imposing export restrictions, describing the current market shock as one of the most significant on record.
On Monday, IEA chief Fatih Birol said that while additional strategic oil releases may not yet be necessary, the agency stands ready to act if required.
Separately, the OPEC trimmed its forecast for global oil demand in the second quarter by 500,000 barrels per day in its latest monthly report.