Oil prices extended their sharp decline in early Asian trading on Tuesday as markets welcomed a fourth consecutive night without military strikes between the United States and Iran, easing immediate fears of a wider disruption to Middle East energy supplies.
Brent crude fell 1.77 per cent to $86.80 a barrel, while US West Texas Intermediate (WTI) dropped 1.97 per cent to $80.98 a barrel. The latest losses followed Monday's dramatic sell-off, when global benchmark crude prices plunged more than 9 per cent – their steepest single-day decline since April – as traders scaled back the geopolitical risk premium that had surged during the recent conflict.
The sharp retreat came after Washington suspended its two-week air campaign against Iran over the weekend, fuelling hopes that diplomacy could prevent a broader regional war threatening global oil supplies.
US President Donald Trump struck an optimistic tone on Monday, saying negotiations with Tehran were progressing despite the absence of formal talks.
"We're having good talks," Trump told reporters aboard Air Force One. "I think there's a good chance that something could happen, and if it does, good. If it doesn't, we go back to doing what we were doing two days ago."
Later, at a campaign rally in Michigan, Trump reiterated that "very friendly negotiations" were underway while warning that military action could resume if diplomacy failed. He also said the United States had halted its strikes at Iran's request, although Tehran has firmly rejected that assertion.
Iranian Foreign Ministry spokesman Esmail Baghaei denied that direct negotiations with Washington were taking place, saying reports that Tehran had sought talks were "fabricated". While confirming that messages continued to be exchanged through regional mediators, he stressed that "there are no negotiations with the United States at present" and insisted Iran would not allow Washington to dictate "the timing of war and peace."
Despite the lull in direct US-Iran hostilities, security risks across the region remain elevated, preventing oil prices from falling further.
The Saudi Defence Ministry said it intercepted several drones launched from Iraq targeting petroleum facilities in the kingdom's oil-rich Eastern Province and the Riyadh region. The attacks drew condemnation from several Arab states, including Kuwait, Qatar, Oman and Lebanon, underscoring continued concerns over attacks by Iran-aligned groups even as Washington and Tehran refrain from direct confrontation.
Meanwhile, Oman intensified regional diplomatic efforts aimed at preventing a renewed escalation. Omani Foreign Minister Badr Albusaidi held discussions with counterparts from Iran, Saudi Arabia, Qatar, Kuwait and Egypt on Monday as Muscat sought to revive diplomatic channels and encourage a political resolution to the crisis.
Shipping disruptions also continue to weigh on market sentiment.
Commercial traffic through the Strait of Hormuz – the world's most important oil transit chokepoint – remains well below normal levels despite the absence of new attacks. Fewer than 10 commodity vessels had transited the waterway by Monday morning, compared with around 100 commercial ships on a typical pre-conflict day.
Energy markets are also closely monitoring the Bab al-Mandeb Strait at the southern entrance to the Red Sea, where the threat of attacks on commercial shipping by Iran-backed Houthi militants continues to pose risks to global energy supply chains.
Analysts said the sharp correction in oil prices reflects growing confidence that an immediate escalation has been averted, but warned that geopolitical risks remain significant. Any breakdown in the tentative diplomatic efforts, renewed military strikes, or further attacks on regional energy infrastructure or shipping could quickly reverse the recent decline and send crude prices sharply higher once again.
