Oil prices continued to decline during Asian trading on Tuesday as optimism surrounding renewed diplomatic engagement between the United States and Iran reduced concerns over potential disruptions to crude supplies from the Middle East.
By 01:23 GMT, Brent crude futures had fallen 1.3% to $87.24 a barrel, while West Texas Intermediate (WTI) crude futures were down 1.2% at $81.61 a barrel. The losses followed Monday’s sharp sell-off, when both benchmarks dropped by more than 9%.
The latest decline reflects investors unwinding last week’s strong rally as expectations of a major interruption to global oil exports continued to fade.
Diplomatic Progress Weighs on Oil Prices
Crude markets have retreated sharply after Brent briefly climbed above $100 a barrel last week, with traders becoming increasingly confident that tensions in the Middle East may continue to ease.
Investor sentiment improved after President Donald Trump confirmed that Washington and Tehran were engaged in negotiations aimed at ending the conflict, following his decision to suspend additional US military strikes and allow diplomatic discussions to continue.
Iran also paused retaliatory action after the United States halted its military operations, while reports suggested China has been working to encourage renewed dialogue between both sides.
IG senior market analyst Tony Sycamore said the more than 9% decline in oil prices reflected growing confidence that a diplomatic solution could emerge, reducing immediate concerns over threats to energy infrastructure across the region.
However, he warned that the current pause remains uncertain and added that investors are waiting for stronger evidence of lasting progress before removing the geopolitical risk premium from oil markets.
Shipping Risks Continue to Influence Supply Outlook
Despite improving market sentiment, Sycamore noted that tanker traffic through the Strait of Hormuz has yet to recover meaningfully, while shipping volumes through the Bab el-Mandeb Strait also remain significantly below normal levels.
He added that markets will closely monitor negotiations aimed at improving shipping access through the Strait of Hormuz, warning that any collapse in diplomatic efforts or renewed attacks on Saudi Arabian export facilities could quickly restore geopolitical risk premiums in crude prices.
Officials from Iran and Oman continue discussions focused on reopening one of the world’s most strategically important shipping routes, which normally handles around one-fifth of global oil exports.
A successful outcome could create momentum for broader negotiations between Washington and Tehran, although uncertainty over the durability of the current diplomatic pause continues to leave traders cautious.
Elsewhere, investors also monitored developments in Kazakhstan after the country’s main oil export terminal resumed loading operations following disruptions caused by Ukrainian drone attacks, helping to improve confidence over near-term global crude supplies.