Oil prices declined by 1% on Tuesday as market participants continued to assess a potential pause in U.S. strikes on Iran, which has fostered optimism regarding a diplomatic resolution to their conflict and the normalisation of energy flows in the Middle East. Brent crude futures experienced a decline of $0.54, representing a decrease of 0.6%, settling at $87.82 as of 0046. U.S. West Texas Intermediate crude was priced at $81.95 per barrel, reflecting a decrease of $0.66, or 0.8%. Both contracts declined by 1% earlier in the session, reaching their lowest point in over a week.

U.S. President Donald Trump stated on Monday that the United States was engaged in “good talks” with Iran and indicated that there was a possibility of a resolution. However, he indicated that U.S. strikes would recommence should negotiations falter, while Iran made analogous statements regarding potential retaliation. “For now, the relief that an off-ramp has been ⁠found has taken the heat out of prices and eased concerns around Houthi attacks on Saudi infrastructure. However, the situation remains highly fluid,” Tony Sycamore said in a client note.

Afrah al-Zouba, the foreign minister-designate of Yemen’s internationally recognised Saudi-backed government, stated that Yemen-based Houthi fighters sought to emulate Iran’s dominance over shipping in the Strait of Hormuz at Bab el-Mandeb. “Whether the Houthis have the military capacity to enforce a comprehensive blockade is questionable, especially given that the Saudis will attack ‌them relentlessly. Still, there is no doubt that traffic has dropped off significantly in the Red Sea and the Strait of Hormuz,” said analyst Edward Meir. “A key reason prices ⁠are not even higher than they are right now is the demand destruction that is taking place, especially in Asia,” Meir said.

Barclays analysts noted on Monday that “flows through the strait remain subdued”. In the week ending July 24, net exports of crude oil and refined products through the strait averaged 2.9 million barrels per day, a decline from the 5.9 million barrels recorded in the prior week. In other developments, a poll indicated that U.S. crude oil stockpiles probably decreased last week, in tandem with petrol inventories, whereas distillate stocks are expected to have increased.