Oil markets extended sharp losses in Asian trade on Tuesday, building on a fall of more than 9% in the previous session as investors re-evaluated the likelihood of prolonged disruption to Middle East crude supplies.
As of 20:44 ET (00:44 GMT), Brent futures were quoted at $87.85 a barrel, down 0.6%, while WTI futures traded at $81.96 a barrel, down 0.8% after plunging over 9% the session before.
Traders moved to unwind a rally seen last week, which briefly pushed Brent above $100 a barrel, as signs emerged that diplomatic engagement could reduce the immediate threat to energy infrastructure and shipping in the region. The pullback reflected a shift from a heightened geopolitical premium toward a reassessment of supply risk.
Sentiment shifted after public comments indicated Washington and Tehran were engaged in talks aimed at ending the recent conflict. Those remarks followed a U.S. decision to suspend further strikes and provide space for negotiations. Iran likewise paused retaliatory strikes after the U.S. announcement, and reporting suggested China had been involved in efforts to revive diplomacy between the two sides.
Market participants attributed much of the recent selloff to growing confidence that an off-ramp from the conflict had emerged. IG's senior market analyst Tony Sycamore characterized the more than 9% drop as reflecting that increased confidence, noting it eased immediate concerns about attacks on Middle East energy infrastructure. He also cautioned that the current pause remained delicate, with markets still seeking tangible proof of sustained diplomatic progress before fully removing geopolitical risk from prices.
Despite improving sentiment, observers pointed to continuing disruptions in tanker movements through key waterways. Traffic through the Strait of Hormuz has not shown meaningful recovery, and flows via the Bab el-Mandeb Strait remain well below normal. Negotiations involving Iran and Oman are ongoing with the stated aim of restoring navigation through the Strait of Hormuz, a route that normally carries roughly one-fifth of global oil flows. Parties involved told market watchers that a successful agreement on shipping could open the door to broader U.S.-Iran talks, but uncertainty about how durable the diplomatic pause will be persists.
Any failure in talks - or a return to attacks on export infrastructure such as facilities in Saudi Arabia - would likely revive the geopolitical risk premium and push crude prices higher again. For now, however, the market is pricing in a reduced near-term risk of broad supply interruption.
Adding to signs that global supply pressures may be easing, Kazakhstan's main oil export terminal resumed loading following earlier disruptions linked to Ukrainian drone attacks. According to Kazakhstan's energy ministry, two tankers began loading at the Caspian Pipeline Consortium terminal near the Russian port of Novorossiysk, a development that market participants said could help bolster expectations for improved crude availability.
Market context
The rapid reversal of prices over recent sessions illustrates the market's sensitivity to both diplomatic developments and physical supply signals. Traders continue to weigh statements from officials, reports on naval and tanker movements, and the pace at which export terminals return to operation when setting positions in crude futures.
Outlook constraints
While hopes for talks have taken pressure off immediate price spikes, the situation remains contingent on concrete diplomatic outcomes and the restoration of normal shipping flows. Market participants said they remain alert to the potential for renewed disruptions should negotiations falter or attacks resume.