Oil prices fell about 1% on Tuesday as investors assessed a pause in US strikes on Iran, raising hopes that diplomatic efforts could ease tensions in the Middle East and restore energy flows through key shipping routes.
Brent crude futures fell 54 cents, or 0.6%, to $87.82 a barrel, while US West Texas Intermediate (WTI) crude slipped 66 cents, or 0.8%, to $81.95 a barrel by 0046 GMT.
Both benchmark contracts had earlier declined as much as 1%, touching their lowest levels in more than a week.
Trump cites 'good talks' with Iran
US President Donald Trump said on Monday that Washington was engaged in "good talks" with Tehran and suggested there was a chance of resolving the crisis through negotiations.
However, Trump warned that US military strikes could resume if diplomacy failed, while Iranian officials also maintained that Tehran would retaliate if attacked.
"For now, the relief that an off-ramp has been found has taken the heat out of prices and eased concerns around Houthi attacks on Saudi infrastructure. However, the situation remains highly fluid," IG analyst Tony Sycamore said.
Shipping disruptions continue
Despite optimism over diplomacy, analysts cautioned that risks to global oil supplies remain elevated.
Afrah al-Zouba, foreign minister-designate of Yemen's internationally recognised government, said the Houthi movement was seeking to replicate Iran's influence over shipping in the Strait of Hormuz by targeting vessels passing through the Bab el-Mandeb Strait.
Marex analyst Edward Meir said shipping activity had fallen significantly in both waterways.
"Whether the Houthis have the military capacity to enforce a comprehensive blockade is questionable, especially given that the Saudis will attack them relentlessly. Still, there is no doubt that traffic has dropped off significantly in the Red Sea and the Strait of Hormuz," Meir said.
He added that slowing demand, particularly in Asia, was helping prevent oil prices from rising further.
Exports through Hormuz remain subdued
Analysts at Barclays said crude and refined product exports through the Strait of Hormuz remained well below normal levels.
According to the bank, net exports averaged 2.9 million barrels per day in the week ending July 24, compared with 5.9 million barrels per day a week earlier.
US inventories expected to decline
Meanwhile, a preliminary Reuters survey indicated that US crude oil inventories likely declined last week, alongside gasoline stocks, while distillate inventories were expected to increase.
Markets are expected to remain sensitive to developments in US-Iran negotiations and the security situation across the Middle East's key maritime trade routes.
