Oil Prices Extend Slide as U.S.-Iran Talks Ease Middle East Supply Fears

Oil prices continued to fall in Asian trading on Tuesday after suffering their steepest decline in months, as renewed optimism over U.S.-Iran diplomatic talks reduced concerns about disruptions to Middle East crude supplies. Investors trimmed geopolitical risk premiums following signs that tensions between the two countries may be easing.

Brent crude futures dropped 0.6% to $87.85 per barrel, while U.S. West Texas Intermediate (WTI) crude fell 0.8% to $81.96. The losses followed a dramatic decline of more than 9% in the previous session, reversing much of last week's rally that briefly pushed Brent above $100 per barrel.

Market sentiment improved after President Donald Trump said Washington and Tehran were engaged in negotiations aimed at ending the conflict. His decision to suspend additional U.S. military strikes and allow diplomatic efforts to continue fueled expectations that a broader regional conflict could be avoided. Iran also paused retaliatory actions, while reports suggested China has been supporting efforts to restart negotiations between both sides.

According to IG senior market analyst Tony Sycamore, the sharp selloff reflected growing confidence that diplomatic channels could reduce the risk of major disruptions to global oil supplies. However, he cautioned that investors remain cautious until there is stronger evidence of a lasting agreement.

Despite improving sentiment, supply concerns have not disappeared. Shipping activity through the Strait of Hormuz and the Bab el-Mandeb Strait remains well below normal, highlighting ongoing risks to global energy transportation. Traders are closely monitoring negotiations involving Iran and Oman aimed at restoring safe navigation through the Strait of Hormuz, a critical route that handles roughly 20% of the world's oil shipments. Any collapse in talks or renewed attacks on regional energy infrastructure could quickly revive the geopolitical premium in crude prices.

Meanwhile, global supply prospects received additional support after Kazakhstan's primary oil export terminal resumed operations following disruptions linked to Ukrainian drone attacks. The restart of tanker loadings at the Caspian Pipeline Consortium terminal near Russia's Novorossiysk port is expected to improve crude exports and further ease supply concerns.