Oil prices pulled back slightly on Tuesday as financial markets tried to balance reports of diplomatic efforts between the United States and Iran against a continued exchange of military strikes between the two countries.
Brent crude futures dropped 35 cents, or 0.4%, to $88.87 per barrel by 0052 GMT, while U.S. West Texas Intermediate crude for September delivery held steady at $82.47 a barrel. Both contracts remained below the multi-month highs they had reached in the previous trading session.
Tensions in the region escalated further after Yemen’s Houthi movement, which is aligned with Iran, announced Monday that it plans to impose a naval blockade on Saudi Arabia. The move could open a new conflict front against the U.S. and threaten energy supplies and trade routes extending beyond the Gulf region.
Tim Waterer, chief market analyst at KCM Trade, warned of the potential consequences: “The threats of a naval blockade on Saudi Arabia by the Houthis are significant because they raise the risk of disruption to another major oil exporter.”
On the diplomatic front, a senior Iranian official told Reuters that Tehran had received a proposal from mediators calling for a 10-day ceasefire. The proposal is part of efforts to preserve an interim deal reached on June 17, which was designed to lay the groundwork for a permanent agreement to end the war. That conflict began on February 28 when U.S.-Israeli forces launched strikes on Iran.
The push for talks came after another night of U.S. strikes on Iranian cities and retaliatory attacks by Iran’s Revolutionary Guards on American military assets throughout the region. U.S. Central Command later confirmed it had launched an additional round of strikes on Iran.
IG market analyst Tony Sycamore offered this assessment in a written note: “(Oil) has come a long way already and it certainly has the potential to go higher again. However, in the short term the overnight talk of de-escalation and peace talks appears to be capping the upside for the time being. Whether anything comes from those peace talks remains to be seen.”
A preliminary Reuters poll released Monday indicated that U.S. crude oil stockpiles were likely down last week, along with gasoline supplies, while distillate inventories were expected to have increased.
