Oil prices edged lower on Tuesday after posting strong gains in the previous session, as traders continued to evaluate conflicting reports surrounding diplomatic efforts between the United States and Iran.
On Monday, U.S. President Donald Trump said discussions with Tehran were still underway, while Iranian news agency Tasnim had earlier reported that Iran had suspended indirect talks with Washington.
By 0649 GMT, Brent crude futures were down 53 cents, or 0.56%, at $94.45 per barrel. U.S. West Texas Intermediate crude fell 56 cents, or 0.61%, to $91.60 per barrel.
Both benchmarks had surged by more than 5% on Monday, although they had still recorded losses of more than 16% during May amid hopes that a diplomatic agreement could help ease tensions.
Markets Remain Focused on Diplomatic Developments
Analysts said uncertainty surrounding negotiations continues to be the dominant factor influencing oil prices.
“While markets had hoped to move past the uncertainty amid prospects of a potential deal, nothing appears to have changed for oil as of this morning,” said Priyanka Sachdeva, senior market analyst at Phillip Nova.
In comments to CNBC on Monday, Trump said he was unconcerned if negotiations had ended. Shortly afterward, however, he stated on social media that talks with Iran were continuing and later told ABC News that he expected an agreement to extend the ceasefire and reopen the Strait of Hormuz “over the next week”.
According to Tim Waterer, chief market analyst at KCM Trade, investors remain highly sensitive to any developments related to the negotiations.
“The market is currently focused on whether there’s any concrete progress or setbacks in U.S.-Iran negotiations, the tone and substance of statements from both sides (particularly Iran’s threats regarding the Strait of Hormuz), and actual physical tanker movements through the waterway,” said Waterer.
He added that the future direction of oil prices will largely depend on the outcome of the diplomatic process.
“The status of the U.S.-Iran negotiations at any given point will ultimately determine whether the current risk premium stays embedded in oil prices or starts to unwind,” Waterer added.
Middle East Tensions Continue to Influence Energy Markets
Developments elsewhere in the region also remained in focus.
Lebanon announced a partial ceasefire between Israel and Hezbollah on Monday, representing a limited easing of tensions within a conflict that has contributed to the broader confrontation involving Iran.
Since the outbreak of the war, Iran has effectively restricted nearly all non-Iranian shipping traffic entering and leaving the Gulf, disrupting roughly one-fifth of global oil and liquefied natural gas flows.
The resulting supply concerns have contributed to a sharp rise in energy prices, with crude benchmarks climbing by more than 50% from pre-conflict levels.
U.S. Oil Exports Reach Record Levels
Higher oil prices and supply disruptions in the Middle East have boosted international demand for U.S. crude.
Ship-tracking estimates released on Monday showed that U.S. crude exports climbed to a record 5.6 million barrels per day in May, supported by increased purchases from refiners in Asia and Europe seeking alternative sources of supply.
Inventory Data Points to Tighter Supply Conditions
Market participants are also watching inventory trends for signs of tightening supply.
A preliminary Reuters survey published on Monday indicated that U.S. crude stockpiles likely declined by approximately 3.6 million barrels during the week ended May 29, extending the drawdown recorded in the previous week.
The survey also suggested that inventories of gasoline and distillate fuels likely moved lower over the same period.
Shipping Industry Seeks Clarity on Hormuz Transit
Executives from the global shipping industry gathered in Athens on Monday to discuss the implications of the ongoing conflict and the prospects for maritime trade through the Strait of Hormuz.
Industry representatives said that any agreement reached between Washington and Tehran would need to establish clear operating guidelines before shipping companies could confidently resume normal commercial activity through the strategically important waterway.
Given the Strait’s critical role in global energy transportation, markets are expected to remain highly sensitive to any developments that could affect the movement of oil and natural gas exports through the region.