Oil prices fell in early Asian trading on Tuesday as hopes for renewed dialogue between the US and Iran eased earlier supply concerns related to disruptions in shipping through the Hormuz Strait and Iranian ports. According to Reuters, as of 0003 GMT, Brent crude futures slipped $1.86 to $97.50 per barrel, a 1.87% drop, while WTI crude fell $2.25 to $96.83 per barrel, a 2.27% decline. In the previous session, both benchmark oil prices had surged — with Brent up over 4% and WTI nearly 3% — following US-imposed sanctions on Iranian ports.
Dialogue Expectations Ease Supply Anxiety
The shift in market sentiment primarily stems from the latest diplomatic signals. Citing sources, Reuters reported that US and Iranian negotiators might resume contact in Islamabad this week, although weekend talks failed to reach an agreement to end the conflict. On Monday, Trump also indicated that Iran "wants to make a deal." Prior to this, the US had begun blocking Iranian ports, with Iran threatening retaliatory action against Gulf neighbor ports. Traders are therefore continuing to assess real-world transportation risks while betting on the possibility of at least marginal easing of tensions.
Market Still Trading on “Risk Unresolved But Panic Subsides”
Analysts believe that the current drop in oil prices does not mean geopolitical risks have disappeared, but rather reflects a partial pullback from the risk premium after the previous day's rapid increase. Reuters cited KCM Trade's chief market analyst, Tim Waterer, as saying that although weekend talks in Pakistan broke down, signals from Trump about a possible agreement have successfully curbed the momentum of a continued steep rise in oil prices. In other words, the crude oil market currently trades on the scenario of "supply risks remain, but short-term panic has eased."
Institutions Raise Oil Price Forecasts
While prices have pulled back, some institutions still maintain a bullish outlook on the future market. According to Reuters, ANZ Bank now expects Brent crude to finish at $88 per barrel by the end of 2026 and remain above $90 per barrel for the rest of 2026; previously, the bank's forecast was close to $80 per barrel. This indicates that while the hope for dialogue has temporarily provided relief, the ongoing tight supply situation over the coming months has not been fully alleviated.
International Institutions Warn Shock Could Still Expand
International institutions are continually issuing risk alerts. The International Energy Agency, International Monetary Fund, and World Bank have jointly urged countries to avoid hoarding energy supplies or imposing export controls, stating the current situation could evolve into one of the "largest shocks in the global energy market history." The IEA also stated that if necessary, they are prepared to further utilize global strategic oil reserves to help cushion the impact of supply disruptions.
Overall, Tuesday's oil price pullback more reflects a short-term correction in geopolitical tension rather than a genuine resolution of supply risks. Next, the market will keep an eye on two variables: whether the US and Iran can resume substantive negotiations, and whether shipping through the Hormuz Strait and surrounding waters can return to more normal levels. As long as these two questions remain unanswered, international oil prices are likely to remain highly volatile.
