Oil prices declined on Tuesday, undoing the increases observed in the prior session, amid anticipations that peace negotiations between the U.S. and Iran will occur this week, potentially facilitating a greater supply from the crucial Middle East production area. Brent futures experienced a decrease of 95 cents, equivalent to 1%, settling at $94.53 as of 0003. U.S. West Texas Intermediate crude futures for May declined by $1.54, representing a decrease of 1.72%, settling at $88.07. The May contract is set to expire on Tuesday, while the more-active June contract experienced a decline of $1.09, representing a decrease of 1.3%, settling at $86.37. Both benchmarks experienced significant gains on Monday, with Brent increasing by 5.6% and WTI rising by 6.9%. This surge followed Iran’s decision to once again close the Strait of Hormuz, a critical oil transport route, alongside the U.S. seizing an Iranian cargo ship as part of its ongoing blockade of the nation’s ports. Investors are currently concentrating on the probability that discussions this week will lead to either an extension of the current ceasefire or a conclusive agreement.

However, the potential for additional conflict and interruptions to oil supply continues to loom. A senior Iranian official informed Reuters on Monday that Iran is considering its involvement in the peace talks in Pakistan, in light of Islamabad’s initiatives to resolve the U.S. blockade. The blockade has presented a significant obstacle to Tehran’s reintegration into peace initiatives, as the existing two-week ceasefire is scheduled to conclude this week. Analysts at Citi indicated a prevailing expectation for the signing of an MOU and/or an extension of the ceasefire this week, which could potentially lead to a more comprehensive agreement. “That said, we are ready to shift towards a more extended disruption scenario if negotiations do not succeed this week.”

Highlighting the ambiguity surrounding the discussions, the Iranian official emphasized that no decision has been reached regarding attendance, as Iranian Foreign Minister Abbas Araqchi noted that “continued violations of the ceasefire” by the U.S. pose an obstacle to further negotiations. In a distinct statement, Iran’s chief negotiator and parliament speaker, Mohammad Baqer Qalibaf, emphasized that Tehran would not engage in negotiations while facing threats. Shipping activity through the Strait of Hormuz, a critical passage for approximately one-fifth of the global oil supply, continued to be constrained on Monday.

Citi indicated that if disruptions to the strait continue for an additional month, cumulative losses may escalate to approximately 1.3 billion barrels, with prices anticipated to hover around $110 per barrel in the second quarter of 2026. Kuwait has declared force majeure on oil shipments as a result of the blockade in the strait, according to a report. According to analysts, the elevated prices resulting from the closure of the strait have led to a reduction in oil demand by approximately 3% to date. The risk is “skewed toward larger losses the longer normalisation is delayed,” it stated, further indicating that it anticipates “full normalisation” to be achieved only by late 2026.