Oil prices fell more than 1 percent on Tuesday as traders weighed signs of renewed diplomatic efforts between the United States and Iran against continued military strikes and growing threats to energy supplies in the Middle East.
Brent crude dropped $1.21, or 1.4 percent, to $88.01 a barrel by 0815 GMT. US West Texas Intermediate (WTI) crude for August delivery, which expires on Tuesday, fell 94 cents, or 1.1 percent, to $82.29 a barrel. The more actively traded September WTI contract was down 95 cents, or 1.2 percent, at $81.53.
The decline came after reports that mediators had proposed a 10 day ceasefire between Washington and Tehran, raising hopes that both sides could revive the memorandum of understanding signed in June and restart negotiations aimed at ending months of conflict.
Analysts at ING said the proposed truce had improved market sentiment, although they cautioned that major differences remain between the two countries. They also noted that US President Donald Trump has warned of retaliation following the deaths of several American soldiers, highlighting the fragile nature of any diplomatic progress.
A senior Iranian official told Reuters that Tehran had received the ceasefire proposal as part of efforts to rescue the agreement reached on June 17, which was designed to create a path towards a lasting peace after fighting erupted on February 28.
Despite those diplomatic efforts, the conflict showed no signs of easing. The United States carried out fresh strikes on Iranian cities overnight, while Iran’s Revolutionary Guards targeted US military assets across the region. Later on Monday, US Central Command announced another round of attacks on Iran.
Analysts at SEB Research said markets remain divided over whether the latest military action is intended to strengthen negotiating positions before a possible breakthrough or whether it signals a longer conflict that could keep oil supplies under pressure.
Supply concerns also remained in focus after a tanker in the Strait of Hormuz was reportedly hit by an unknown projectile, forcing its crew to abandon the vessel. The United Kingdom Maritime Trade Operations agency also reported fewer ships passing through the key waterway following the latest attacks.
Adding to market uncertainty, Yemen’s Iran backed Houthis threatened to impose a naval blockade on Saudi Arabia, raising fears that disruption could spread beyond the Strait of Hormuz and affect another major oil exporter.
Meanwhile, a preliminary Reuters survey showed US crude oil and gasoline inventories were expected to have fallen last week, while distillate stockpiles likely increased, with official government data due later this week.
Read next: Crude oil price reduction, impact on petrol prices in Pakistan
