Oil falls to one-week low as easing US-Iran tensions reduce market fears

Crude oil prices remained under pressure on Tuesday, extending losses after a sharp decline of nearly 8% in the previous trading session. Optimism over ongoing diplomatic discussions between the US and Iran continued to reduce geopolitical risk premiums, although weaker oil flows through the Strait of Hormuz and security concerns in the Red Sea helped prevent a steeper fall.

On Monday, September Brent crude settled at $88.36/bbl, down $8.42, while September WTI closed at $82.61/bbl, a decline of $6.70 from the previous session.

At the time of writing, Brent was trading at $86.37/bbl, down another $1.99 (2.25%), while WTI slipped $1.53 (1.85%) to $81.08/bbl.

Diplomatic progress weighs on crude prices

Oil markets continued to soften after the US paused military operations against Iran over the weekend, boosting hopes that the conflict could move toward a diplomatic resolution. US officials stated that talks with Iran were progressing positively but warned that military action could resume if negotiations fail. Meanwhile, the restart of oil exports through the Caspian Pipeline Consortium's Black Sea terminal also helped ease immediate supply concerns.

Supply risks still provide support

Despite improving diplomatic sentiment, concerns over global oil supply have not completely disappeared. According to Barclays, crude and refined product exports through the Strait of Hormuz averaged 2.9 million barrels per day in the week ending July 24, compared with 5.9 million barrels per day a week earlier, indicating that shipping activity remains significantly below normal.

Regional security risks also continue to support the market. Saudi Arabia reported intercepting drones targeting petroleum facilities, while Yemen's Houthis claimed responsibility for an attack on Saudi Arabia's East-West Pipeline. Although geopolitical risk premiums have eased considerably from last week's highs, ongoing security concerns in the Middle East continue to keep supply disruption risks firmly in focus.

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