Oil prices edged lower during Tuesday's Asian deals, as investors continued to assess developments surrounding United States-Iran negotiations and the outlook for shipping through the Strait of Hormuz.
By 2:30 pm AEST (4:30 am GMT), Brent crude futures were down US$0.77, or 0.8%, at US$94.21 per barrel, while US West Texas Intermediate crude fell US$0.85, or 0.9%, to US$91.31 per barrel.
The modest decline followed a sharp rally on Monday, when Brent and WTI settled 4.2% and 5.5% higher, respectively, amid concerns over potential disruptions to global energy supplies.
Prices pared some of those gains later in the session after U.S. President Donald Trump said Israel had agreed to pull back troops preparing for operations in southern Lebanon, easing fears of a broader regional escalation.
Investor sentiment remains highly sensitive to developments in negotiations between Washington and Tehran.
Trump said on Monday that talks with Iran were continuing, while Iran's Tasnim news agency reported that Tehran had suspended indirect negotiations with the United States.
In a separate interview with CNBC, Trump suggested he was unconcerned if discussions were abandoned altogether, saying he did not mind if US-Iran talks were over.
However, the president later struck a more optimistic tone. In a social media post, Trump said negotiations with Iran were continuing and subsequently told ABC News that he expected an agreement to extend the ceasefire and reopen the Strait of Hormuz "over the next week".
The Strait of Hormuz remains at the centre of market attention due to its importance to global energy flows. The waterway is a critical transit route for crude oil and liquefied natural gas exports from the Middle East.
Analysts at ANZ commented in a note to clients:
"The impact of the Middle East conflict continues to broaden. Last week, data showed U.S. exports may have peaked. Strong exports of crude and products have been supported by inventory drawdowns rather than new supply, creating a risk that exports may decline as the U.S. driving season lifts domestic demand and refinery utilisation.
"This could tighten global supply just as reliance on U.S. flows peaks. The inventory buffer is also diminishing. Continued drawdowns in commercial stocks and strategic reserves are reducing the market’s capacity to absorb supply shocks."
Iran has effectively curtailed most non-Iranian shipping activity into and out of the Gulf since the conflict began, disrupting approximately one-fifth of global oil and liquefied natural gas flows and contributing to a surge in energy prices.
The disruption has increased reliance on alternative suppliers, particularly the United States.
According to Reuters, citing ship-tracking estimates, U.S. crude exports climbed to a record 5.6 million barrels per day in May as refiners in Asia and Europe sought additional supplies amid uncertainty in Middle Eastern markets.
