Oil prices sank about four per cent on Wednesday after reports the United States had sent Iran a 15-point proposal aimed at ending the war in the Middle East, raising prospects of a ceasefire that could ease supply disruptions in the region.
Brent crude futures fell $4.17, or four per cent, to $100.32 a barrel by 07:08 GMT, after declining to as low as $97.57. US West Texas Intermediate crude futures were down $3.11, or 3.4 per cent, at $89.24 a barrel, after falling to as low as $86.72.
Both benchmarks rose nearly five per cent on Tuesday, before paring gains in volatile post-settlement trading.
"Expectations of a ceasefire have risen slightly and profit-taking is leading the market," said Hiroyuki Kikukawa, chief strategist of Nissan Securities Investment, a unit of Nissan Securities. "But the outlook remains uncertain as to whether negotiations will succeed, limiting selling."
US President Donald Trump said on Tuesday the US was making progress in negotiating an end to the war with Iran, while a source confirmed that Washington had sent Iran a 15-point settlement proposal.
Israel's Channel 2 said the US was seeking a month-long ceasefire to discuss the plan, which includes the dismantling of Iran's nuclear programme, ceasing support for proxy groups, and the reopening of the Strait of Hormuz.
Some analysts were sceptical on the progress of such talks, expecting markets to remain volatile.
Phillip Nova's senior market analyst Priyanka Sachdeva said Middle East developments would remain the "dominant price driver" keeping oil prices moving in a wide range in the near term.
The war has all but halted shipments of oil and liquefied natural gas through the strait, which typically carries about one-fifth of the world's gas and crude supply, causing what the International Energy Agency has called the biggest-ever oil supply disruption.
"The market outlook remains tight notwithstanding the prospects of a war off-ramp," said Saul Kavonic, head of energy research at MST Marquee.
He said that even if flows through the strait resume, "it's not clear all shut-in production will resume until there is more clarity on the durability of a ceasefire."
Iran has told the United Nations Security Council and the International Maritime Organisation that "non-hostile vessels" may transit the Strait of Hormuz if they coordinate with Iranian authorities, according to a note seen by Reuters on Tuesday.
Still, US, Israeli and Iranian strikes continued and sources said Washington was preparing to send more troops to the region.
To offset the Hormuz disruptions, oil exports from Saudi Arabia's Red Sea Yanbu port rose to nearly four million barrels per day last week, a sharp increase from before the war broke out, shipping data shows.
In the US, crude, petrol and distillate stocks rose last week, according to market sources who cited American Petroleum Institute figures on Tuesday.
Crude stocks rose by 2.35 million barrels in the week ended March 20, petrol inventories rose by 528,000 barrels and distillate inventories rose by 1.39 million barrels from a week earlier, the sources said.
(Reporting by Yuka Obayashi in Tokyo and Trixie Yap in Singapore; Editing by Jamie Freed and Bernadette Baum)
