Oil prices fell about five per cent to a three-month low on Tuesday as traders hoped the US and Iran would agree to end the war and allow oil to flow through the Strait of Hormuz.
Prices, which were already down about four per cent Tuesday morning, extended those losses following a Wall Street Journal report that the US would allow Iran to immediately begin selling oil and fuel under the memorandum of understanding.
Brent crude futures fell $4.25, or 5.1 per cent, to $78.92 a barrel at 12:02 ET (16:02 GMT). US West Texas Intermediate crude fell $4.80, or 5.9 per cent, to $75.95.
The drop put Brent on track for its lowest close since March 2 and kept it in technically oversold territory for a third day in a row for the first time since October 2025. WTI was on track for its lowest close since March 4.
The US-Iran war started on February 28. On February 27, Brent closed at $72.48 a barrel and WTI closed at $67.02.
On Monday, oil prices sank nearly five per cent after US President Donald Trump announced an interim deal to end the US-Israeli war with Iran. On Tuesday, Trump said the text would be made public soon.
Still, doubts swirled around the interim US-Iran deal to end the war. Experts warned that shipping and energy exports could take weeks to recover.
"For now, a major vote of confidence is being applied to the success of this plan with limited regard to thorny issues such as financial compensation, sanctions and especially a satisfactory nuclear deal that was largely the reason behind the war," analysts at energy advisory firm Ritterbusch and Associates said in a note.
The interim deal would extend a tenuous ceasefire announced in April by another 60 days and reopen the strait, which Iran has effectively blocked since the US and Israel first attacked Iran. About 20 per cent of global oil supplies passed through the strait before the war.
After news of the preliminary agreement on Monday, investment banks, including Goldman Sachs, Morgan Stanley and Citi, lowered their oil price forecasts.
Other factors weighing on oil prices included worries about China's economy, rising global inflation and interest rates, and US calls for peace between Russia and Ukraine.
In China, the world's second-biggest economy showed increasing unevenness in May.
Trump said Russia should make peace with Ukraine, and that he would try to help, after Group of Seven leaders met Ukrainian President Volodymyr Zelenskiy on Tuesday.
A settlement in the Ukraine war could result in the lifting of some sanctions on Russia, which could allow Moscow to export more oil. Russia was the world's third-biggest crude oil producer behind the US and Saudi Arabia in 2025, according to US energy data.
In the US, most global brokerages are betting the Federal Reserve will hold interest rates steady for the rest of 2026, reversing from expectations of two interest rate cuts at the start of the year, as policymakers navigate elevated inflation risks and a resilient labour market.
The Bank of Japan raised interest rates to a 31-year high on Tuesday.
Higher interest rates raise consumer costs, which can reduce economic growth and demand for oil.
China's crude oil throughput in May fell 9.1 per cent from a year earlier to the lowest level in almost four years.
The oil market awaited weekly storage reports from the American Petroleum Institute trade group later on Tuesday and the US Energy Information Administration on Wednesday.
Analysts estimated energy firms pulled 4.5 million barrels of crude from storage during the week ended June 12.
If correct, that would be the first time energy firms pulled crude out of storage for eight weeks in a row since January 2025. It compares with a decrease of 11.5 million barrels in the same week last year and an average decline of 2.3 million barrels over the past five years (2021 to 2025).
(Reporting by Scott DiSavino in New York, Stephanie Kelly and Robert Harvey in London, Anushree Mukherjee and Pranav Mathur in Bengaluru and Trixie Yap in Singapore. Editing by Clarence Fernandez, Mark Potter, Susan Fenton, Rod Nickel and David Gregorio)