Oil prices fell 4% after U.S. President Donald Trump said that negotiations with Iran were in the final stages, though investors remain wary about the outcome of peace talks as disruption to Middle Eastern supply continues.
Brent crude futures fell $4.76, or 4.28%, to $106.52 a barrel by 11:29 a.m. EDT (1529 GMT), and U.S. West Texas Intermediate futures were down $4.22, or 4.05%, at $99.93. Both contracts were heading for their biggest daily drops in percentage and absolute terms in two weeks.
U.S. President Donald Trump said that negotiations with Iran were in the final stages. However, he warned of further attacks unless Iran agrees to a deal. "We're in the final stages of Iran. We'll see what happens. Either have a deal, or we're going to do some things that are a little bit nasty, but hopefully that won't happen," Trump told reporters.
However, some market participants and analysts remain wary about the outcome of negotiations and global supply tightness that will likely persist even if the U.S. and Iran reach a deal.
Analysts at Citi said on Tuesday that they expect Brent crude to rise to $120 a barrel in the near term, stating that oil markets are underpricing the risk of prolonged supply disruption, and Wood Mackenzie estimated that it could approach $200 if the Strait of Hormuz stays largely shut until the end of the year.
Similarly, PVM analysts said global oil stocks could reach critically low levels. "Yet, as observed lately, market players are comparatively nonchalant (or complacent) about what the conflict might bring," PVM said.
The premium on Brent contracts for delivery next month over contracts for delivery in six months - an indicator of traders' views of current supply tightness - is around $20 a barrel, way below last month's highs above $35.
Russian Deputy Prime Minister Alexander Novak said that some countries were lifting sanctions on Russian oil because global markets cannot function without it, the state TASS news agency reported.
Three supertankers were crossing the Strait of Hormuz, carrying oil bound for Asian markets, after waiting in the Gulf for more than two months with 6 million barrels of Middle East crude on board. The number of vessels crossing the strait remains well below the 130 or so ships that crossed daily before the war.
