Oil prices moved sharply lower on Tuesday, as renewed hopes for diplomatic progress weighed on markets amid signs that Iran could resume talks with the U.S. and Israel to end the conflict.
Brent crude fell $4.57, or 4.6%, to settle at $94.79 per barrel, while U.S. West Texas Intermediate (WTI) dropped $7.80, or 7.9%, to $91.20. The decline follows gains in the previous session, when prices rose on news of expanded U.S. military actions in the region.
The selloff reflects growing expectations that negotiations could lead to a de-escalation and eventual reopening of the Strait of Hormuz, a critical artery for global crude and refined product flows. Sentiment has shifted toward a more constructive outlook, with markets increasingly pricing in the possibility of improved supply conditions.
However, underlying fundamentals remain tight. The closure of the Strait of Hormuz and ongoing attacks on energy infrastructure have resulted in a significant loss of global supply, with disruptions reaching historic levels in recent months. As a result, the market continues to balance optimism around diplomacy with the reality of constrained physical flows.
The potential resumption of negotiations remains a key focal point. While discussions are expected to continue, uncertainty persists regarding their outcome and timing. Market participants note that without a meaningful restoration of flows through the Strait, supply pressures could quickly re-emerge.
Additional risks remain on the supply side, including the potential for further escalation tied to the expanded U.S. naval presence and Iran’s threats to target regional infrastructure.
At the same time, updated forecasts point to a softer outlook for both supply and demand growth, reflecting the broader economic impact of elevated energy prices and ongoing geopolitical instability.
Overall, while easing geopolitical tensions have driven the recent pullback in prices, the market remains highly sensitive to developments around negotiations and the pace at which disrupted supply can return to global markets.