The oil market fell about 3 per cent to a seven-week low on Tuesday after Iran and Israel said they had halted attacks on each other following an appeal from US President Donald Trump.
Brent futures dropped $2.80 or 3.0 per cent to settle at $91.45 a barrel, while the US West Texas Intermediate (WTI) crude slid $3.10 or 3.4 per cent to trade at $88.20 a barrel.
President Trump said he remained confident a deal with Iran could be reached soon, even as many expressed scepticism. He also said Iran shot down an American helicopter in the Strait of Hormuz, threatening retaliation.
Tensions were still simmering between Israel and Iran, after the two countries struck each other for the first time in weeks, and CNN noted that the American President had promised an impending deal on at least 37 occasions.
Meanwhile, the rift between the US president and Israeli Prime Minister Benjamin Netanyahu widened further, complicating any agreement.
According to Reuters, Iran has so far held back from attacking even though Israel struck the historic port city of Tyre in southern Lebanon, killing at least eight people.
However, Iran continued to block most shipping through the Strait of Hormuz, which, before the war, carried a fifth of the world’s crude oil and liquefied natural gas. The US has imposed its own blockade of Iranian ports.
Market analysts noted that when the strait ultimately reopens, Iran and Oman will set new conditions for passage, including transit fees.
China’s May crude imports slumped 29 per cent to their lowest level in eight years, extending a sharp decline in the world’s largest oil importer that is helping keep a lid on global oil prices.
The American Petroleum Institute (API) estimated that crude oil inventories in the United States fell by 9.119 million barrels in the week ending June 5. Official data from the Energy Information Administration (EIA) will be released later on Wednesday.
The EIA projected the Iran war would slash world petroleum production to an average of 99.0 million barrels per day in 2026, down from a record 106.1 million barrels per day in 2025. The agency also forecast that world oil demand would slide to 102.9 million barrels per day in 2026 from a record 104.0 million barrels per day in 2025.