Oil prices fell further on Tuesday, hitting their lowest levels in over a week, as investors grew cautiously hopeful that the U.S. and Iran were edging closer to a diplomatic resolution.
Brent crude futures shed $1.75, or 1.98%, to trade at $86.61 a barrel by 07:39 GMT, its lowest print since July 17, while U.S. West Texas Intermediate fell $1.26, or 1.53%, to $81.35, marking a fresh low not seen since July 20.
The synchronized slide reflects a market recalibrating risk premiums that had built up over recent weeks amid fears of a broader regional conflagration.
The catalyst for Tuesday’s selloff traces back to comments from President Donald Trump, who told reporters on Monday that Washington was engaged in “good talks” with Tehran and that a resolution remained within reach.
Still, the president tempered his optimism with a warning: should negotiations collapse, U.S. military strikes would resume.
Iranian officials struck a similarly guarded tone, reiterating their own threats of retaliation if talks fail, a reminder that the détente remains fragile and reversible.
For traders, the mixed signals were nonetheless enough to unwind some of the geopolitical risk premium baked into prices over recent weeks. “While flows of vessels through the Strait of Hormuz remain low, the market hopes the situation improves based on new talks between Oman and Iran on a new mechanism for Hormuz,” said Giovanni Staunovo, an analyst at UBS.
Central to that cautious optimism is a proposal from Oman, long a discreet intermediary between Washington and Tehran, for a joint regional mechanism to manage traffic through the Strait of Hormuz, according to a Gulf source who spoke to media.
The plan reportedly involves voluntary fees paid by vessels transiting the waterway, an arrangement that could, in theory, provide a framework for de-escalation without either side appearing to back down publicly.
The stakes riding on the strait’s stability are difficult to overstate. The narrow passage between Iran and Oman handles roughly one-fifth of global oil consumption, making it the single most consequential chokepoint in the world’s energy supply chain.
Any credible mechanism to keep it open, even a partial or voluntary one, carries outsized significance for global crude flows.
The conflict’s fallout has not been confined to Hormuz alone. Shipping through the Bab el-Mandeb Strait, the second-most critical oil chokepoint globally, was also disrupted in recent weeks, and fears of an outright closure sent prices surging last week.
There are now tentative signs of recovery: vessel traffic through Bab el-Mandeb climbed to 28 ships on Monday, a four-day high, according to data from Kpler. Hormuz, by contrast, has shown no such rebound, with traffic there remaining subdued, underscoring that the market’s relief is partial and geographically uneven.
Even as the immediate panic eases, analysts caution that the risk of disruption spreading further into the Red Sea corridor has not gone away. Saudi Arabia said it intercepted and shot down drones targeting petroleum infrastructure, including sites in Riyadh, attributing the attack to Iran-backed armed factions operating out of Iraq.
The kingdom said it reserved the right to respond, language that leaves open the possibility of escalation rather than closure of the chapter.
Adding to the volatility, Yemen’s Houthi movement, widely regarded as an Iranian ally, claimed it had struck the East-West Pipeline, which carries crude across Saudi Arabia to the kingdom’s main Red Sea export terminal at Yanbu.
The group framed the attack as retaliation for the earlier Saudi drone intercepts, illustrating how quickly the conflict’s various fronts can feed into one another.
Goldman Sachs, in a note cited by market participants, said it expects Brent to moderate to around $80 a barrel by year-end but only under the condition that the Strait of Hormuz fully reopens by the fourth quarter.
The bank flagged that continued Red Sea disruptions and any escalation targeting Saudi oil infrastructure could introduce fresh upside risk to both crude and refined product prices, complicating what might otherwise be a straightforward path toward lower prices.
Beyond the geopolitical backdrop, traders are also parsing fresh signals from U.S. inventory data.
A preliminary market analysis pointed to a likely decline in U.S. crude oil stockpiles last week, alongside a drawdown in gasoline inventories, while distillate stocks were expected to have risen.
Data that will feed into official government figures due later this week could either reinforce or complicate the narrative of easing supply anxiety.
WHAT YOU SHOULD KNOW
Oil prices fell to multi-week lows because markets are betting that diplomacy, not military escalation, will prevail between the U.S. and Iran, anchored by Oman’s proposed mechanism to keep the Strait of Hormuz open.
But that optimism is fragile: Hormuz traffic still hasn’t recovered, and fresh attacks on Saudi oil infrastructure and the Red Sea corridor show the conflict can still flare up and send prices right back up.
The one thing to watch: whether Hormuz shipping actually normalizes that’s the real signal of whether this de-escalation holds.
