Oil prices tumbled around 5% on Tuesday, with Brent crude and US West Texas Intermediate (WTI) settling at their lowest levels in two weeks, as investors grew cautiously optimistic that the pause in hostilities between the US and Iran could pave the way for renewed diplomatic talks.
Brent crude futures fell US$4.27, or 4.8%, to settle at US$84.09 a barrel, while WTI crude dropped US$3.35, or 4.1%, to US$79.26 a barrel. Brent has now fallen about 16% over the past three sessions, marking its lowest close since July 13, while WTI finished at its weakest level since July 16.
The decline came despite uncertainty surrounding the Strait of Hormuz, a vital shipping route that handled around one-fifth of global oil supplies before the conflict. Although military strikes between Washington and Tehran have paused, both sides remain far apart on resolving the dispute that disrupted traffic through the strategic waterway.
Iran denied reports that it was preparing to resume negotiations with the US, contradicting comments by President Donald Trump, who said “good talks” were taking place. Trump has repeatedly suggested diplomatic progress while also warning that military action could resume if negotiations fail.
Adding to the uncertainty, Oman presented Iran with a Gulf-backed proposal to reopen the Strait of Hormuz through a system of voluntary shipping fees. However, Tehran rejected the plan and instead proposed a temporary arrangement that would route part of the shipping traffic through Iranian waters, according to Deputy Foreign Minister Kazem Gharibabadi.
Bob Yawger, director of energy futures at Mizuho, said the market was reacting to the temporary halt in fighting rather than any lasting resolution.
“The market understands the situation is a mess and is trading lower because the two belligerent parties (the US and Iran) have not attacked each other in the past few days,” he said.
He added that low shipping activity through the Strait of Hormuz and continued attacks by Yemen’s Iran-backed Houthi movement in the Red Sea remained significant risks to the market.
Geopolitical concerns were further heightened after Saudi Aramco shut its 400,000 barrels-per-day Jizan refinery following a Houthi attack over the weekend. The disruption has prompted the company to consider a revised pricing mechanism for crude shipments from Egypt’s Sidi Kerir terminal to Asia to account for higher transport costs resulting from rerouted exports.
Shipping data from Kpler showed that 28 vessels passed through the Bab el-Mandeb Strait on Monday, the highest level in four days, although traffic through the Strait of Hormuz remained subdued. The Houthis also claimed responsibility for firing ballistic missiles at a Saudi oil tanker, while China has reportedly held direct discussions with the group to secure safe passage for its tankers through the southern Red Sea.
Outside the Middle East, investors also monitored developments in Eastern Europe after Ukrainian President Volodymyr Zelenskiy said he had discussed reviving peace negotiations with Russia during talks with Trump. A potential settlement could eventually lead to the easing of sanctions on Moscow, allowing Russia, the world’s third-largest oil producer in 2025, to increase crude exports.
Meanwhile, sources said OPEC+ is expected to pause planned oil production increases for three months from October after completing the return of voluntary supply cuts. The producer group is also preparing for potentially challenging negotiations over future output quotas.
