Oil prices declined during Tuesday’s Asian session, partially retracing gains of around 5.7% from the previous day as investors grew more optimistic that renewed talks between the United States and Iran could ease supply disruptions in the Middle East.
By 2:50 pm AEST (4:50 am GMT), Brent crude futures were down 68 cents, or 0.6%, at US$94.87 per barrel, while U.S. West Texas Intermediate (WTI) for June fell 89 cents, or 1%, to $86,53.
The pullback followed a rally on Monday after Iran once again shut the Strait of Hormuz and the United States seized an Iranian cargo vessel as part of its blockade of Tehran’s ports.
Despite ongoing tensions, market participants are increasingly focused on the prospect that negotiations this week could lead to either an extension of the current ceasefire or a broader agreement, potentially allowing energy flows through the region to normalise.
ING Think's commodities strategists commented: "While energy markets popped higher yesterday following Iran’s decision to reverse its opening of the Strait of Hormuz, they’re still trading in a manner which suggests optimism over U.S.-Iran talks.
"The aim, of course, is to establish a viable off-ramp that enables energy flows through the Strait of Hormuz to resume on a sustained, long-term basis.
"But we believe markets are underpricing the ongoing supply disruption. Optimism appears to be clouding the reality of the supply shock.
"Negotiations between the U.S. and Iran are set to resume in Pakistan, with U.S. Vice President JD Vance set to attend. It appears Iran will send a delegation too. This follows earlier suggestions that Iran wouldn’t attend as long as the US blockade continues.
"These talks are important, with the current ceasefire set to end on Wednesday. President Trump has suggested he is unlikely to extend the ceasefire. Therefore, a lack of progress would likely push oil and gas prices higher.
"This would create significant uncertainty over when energy flows through the Strait of Hormuz might return to normal."
"it appears that while oil prices would face downside pressure, the market’s floor for the rest of the year is considerably higher than it was before the war."
A senior Iranian official told Reuters that Tehran is weighing participation in the proposed talks in Pakistan, following diplomatic efforts by Islamabad to resolve the dispute. However, uncertainty remains over whether Iran will ultimately attend.
Iranian Foreign Minister Abbas Araqchi said "continued violations of the ceasefire" by the United States are hindering progress in negotiations.
Separately, Iran’s top negotiator and parliament speaker, Mohammad Baqer Qalibaf, reiterated that Tehran would not engage in talks under threat, reinforcing a cautious stance toward negotiations.
Adding to concerns, Kuwait has reportedly declared force majeure on oil shipments due to disruptions linked to the strait’s blockade, according to Bloomberg News.
