Oil prices were down around one per cent on Tuesday after US President Donald Trump said he had paused a planned attack on Iran to allow for negotiations to end the war.
On Monday, Trump posted on social media that he was holding off on a military attack that had been scheduled for Tuesday while efforts to reach a deal with Iran continued, adding that the US was ready to resume attacks if a deal is not reached.
Brent futures for July were down $1.28, or 1.14 per cent, at $110.82 a barrel by 12:49. The US West Texas Intermediate crude contract for June delivery, which expires on Tuesday, rose by one cent, or 0.01 per cent, to $108.67. The more-active July contract fell 58 cents, or 0.56 per cent, to $103.80.
Even with Tuesday's dip, prices remained elevated. On Monday, Brent hit its highest since May 5 and WTI a peak since April 30.
"We continue to have significant amounts of oil offline and with the regional infrastructure being in the crosshairs we are just holding our breath here until either we get a deal or another round of military action, so a pretty significant binary outcome awaits," said John Kilduff, partner at Again Capital.
The Middle East conflict has effectively closed the Strait of Hormuz, a critical waterway that typically carries daily about a fifth of global supplies of oil and liquefied natural gas, creating the world's biggest oil supply disruption, according to the International Energy Agency.
Tehran's latest peace proposal to the US involves ending hostilities on all fronts including Lebanon, the exit of US forces from areas close to Iran and reparations for destruction caused by the war, state media reported on Tuesday.
Meanwhile, the US imposed sanctions on an Iranian foreign currency exchange house and what it said were front companies overseeing transactions on behalf of Iranian banks. It also blocked 19 vessels it said were involved in shipping Iranian petroleum and petrochemicals to foreign customers.
Elsewhere, Chinese state refiners have slashed oil throughput by more than one million barrels per day since the outbreak of the Iran war, analysts and market sources said, as disruption to crude supplies and poor margins forced them to scale back operations.
Chinese state refiners are processing 8.4 million barrels per day of crude this month, down from 8.6 million bpd in April and 9.5 million bpd in March, according to consultancy Energy Aspects. That compares with about 10 million bpd before the US and Israel attacked Iran at the end of February.
US Treasury Secretary Scott Bessent extended a sanctions waiver by 30 days to allow "energy-vulnerable" countries to continue purchasing Russian seaborne oil.
Separately, Russia's Ryazan oil refinery, which accounts for almost five per cent of the country's total refining volumes, stopped processing after a Ukrainian drone attack last Friday, two industry sources said on Tuesday.
In the US, a record 9.9 million barrels were drawn last week from the Strategic Petroleum Reserve, Energy Department data showed. This reduced stockpiles to about 374 million barrels, the lowest since July 2024.
US crude stocks are expected to have fallen by about 3.4 million barrels in the week to May 15. The weekly data from the Energy Information Administration is due on Wednesday.
(Reporting by Georgina McCartney in Houston, Alex Lawler and Robert Harvey in London, Anmol Choubey, Trixie Yap and Pooja Menon; Editing by Mark Potter, Susan Fenton, David Goodman, Bill Berkrot and David Gregorio)
