Oil prices dropped on Tuesday on hopes Iran will resume talks with the US and Israel to end the conflict that has shut the Strait of Hormuz, one of the world's major waterways for transporting crude and refined products.
Brent crude futures were down $3.93, or 3.96 per cent, at $95.43 a barrel by 11:02 CDT (16:02 GMT). US West Texas Intermediate crude fell by $6.60, or 6.66 per cent, to $92.48.
Both benchmarks rose in the previous session, with Brent climbing more than four per cent and WTI nearly three per cent, after the US military began a blockade of Iranian ports.
"There seems to be this hope in the market there is going to be a better outcome," said John Kilduff, partner with Again Capital. "All of this means the market had earlier priced in a lot of the disruption we've already seen."
While talk of a resumption in US-Iran talks applied downward pressure on prices, the move lower ignores the loss of physical barrels of oil that are not moving, said PVM Oil Associates analyst Tamas Varga.
Attacks on energy infrastructure in the Middle East and Iran's effective closure of the Strait of Hormuz have led to the largest oil supply disruption in history, the International Energy Agency said in its monthly report, with 10.1 million barrels per day lost in March.
"Resuming flows through the Strait of Hormuz remains the single most important variable in easing the pressure on energy supplies, prices and the global economy," the IEA said.
The US military said on Monday that its blockade of the Strait of Hormuz would extend east to the Gulf of Oman and the Arabian Sea. Ship-tracking data showed that two ships turned around in the strait as the blockade started.
However, three Iran-linked tankers entered the Persian Gulf and were allowed to pass because their destinations were not Iranian ports, shipping data showed.
In response, Iran threatened to target ports in nations bordering the gulf. Meanwhile, negotiating teams from the US and Iran could return to Islamabad this week, five sources told Reuters.
A US official also said there was continued engagement on trying to achieve an agreement while Pakistani Prime Minister Shehbaz Sharif also said efforts were still under way.
"In case talks between the adversaries fail to bear fruit, even revisiting the March highs cannot be ruled out as the decline in global oil inventories might spill into the third quarter and beyond," PVM's Varga said.
The IEA sharply cut its forecasts for global oil supply and demand growth, with demand expected to fall by 80,000 bpd in 2026 and supply expected to decline by 1.5 million bpd.
Meanwhile, planned Russian oil product exports from the Black Sea port of Tuapse for April have been revised upwards by about 60 per cent to 1.27 million tonnes from 0.794 million tonnes in the preliminary plan, according to two traders and Reuters calculations.
(Reporting by Seher Dareen and Robert Harvey in London, Anmol Choubey in Bengaluru and Helen Clark in Perth Editing by Sharon Singleton, David Goodman, Alexandra Hudson)
