Oil prices declined as markets anticipate that upcoming U.S.–Iran negotiations will move forward, potentially increasing supply.

Oil prices dropped by more than $1 on Tuesday, giving back the previous session’s gains, as expectations grew that U.S.–Iran peace talks this week could ease tensions and allow more crude supply from the Middle East.

Brent crude fell $1.04 (1.1%) to $94.44 per barrel by 0600 GMT. U.S. West Texas Intermediate (WTI) for May declined $1.66 (1.9%) to $87.95, with the contract expiring Tuesday, while the more active June contract slipped $1.24 (1.4%) to $86.18.

This pullback followed a sharp rally on Monday, when Brent jumped 5.6% and WTI surged 6.9% after Iran closed the Strait of Hormuz again and the U.S. seized an Iranian cargo vessel as part of its blockade.

Despite ongoing risks, market sentiment is being driven by optimism that negotiations could extend the current ceasefire or even produce a broader agreement, though disruptions to supply remain a concern.

ING analysts noted that while prices spiked after the Strait of Hormuz closure, trading patterns still reflect confidence in diplomatic progress, warning that markets may be underestimating the scale of supply disruptions.

Iran is considering joining peace talks in Pakistan, according to a senior official, as Islamabad works to mediate and end the U.S. blockade. However, the blockade continues to complicate Tehran’s participation, especially with the current two-week ceasefire nearing its expiry.

Citi analysts expect a memorandum of understanding or a ceasefire extension this week, potentially leading to a wider deal, but caution that prolonged disruptions remain possible if negotiations fail.

Uncertainty persists, as Iranian officials emphasized no final decision has been made. Foreign Minister Abbas Araqchi cited ongoing U.S. ceasefire violations as a barrier, while Parliament Speaker Mohammad Baqer Qalibaf reiterated that Iran will not negotiate under pressure.

Meanwhile, shipping through the Strait of Hormuz—responsible for roughly 20% of global oil flows—remained constrained. Citi estimates that if disruptions last another month, losses could reach 1.3 billion barrels, pushing prices toward $110 per barrel in Q2 2026.

Kuwait has declared force majeure on oil exports due to the blockade, while higher prices have already reduced global demand by about 3%, according to Societe Generale. The bank warned that risks skew toward greater losses the longer supply disruptions persist, with full normalization unlikely before late 2026.