Oil Prices Tumble 5% on Signs of Easing U.S.-Iran Tensions

Oil prices plunged by approximately 5% on Tuesday to their lowest level in two weeks, as traders reacted to signs of potential diplomatic progress aimed at de-escalating the conflict between the U.S. and Iran.

Global benchmark Brent futures fell $4.61, or 5.2%, to settle at $83.75 a barrel, while U.S. West Texas Intermediate (WTI) crude dropped $4.06, or 4.9%, to $78.55. Both benchmarks were on track for their lowest closing prices since July 13, according to Reuters data.

Diplomatic Overtures in the Middle East

The sell-off was primarily driven by reports of a diplomatic initiative to secure passage through the Strait of Hormuz, a critical chokepoint for global energy supplies. A Gulf source and a Western diplomat told Reuters that Oman has presented a plan, backed by Gulf states, to manage the strait and potentially end trade disruptions.

Before the conflict began, about a fifth of the world's oil supplies transited through the waterway. While a senior Iranian source told Reuters that Tehran had not yet responded to the Omani proposals, the development eased some of the geopolitical risk premium that had been priced into crude markets. U.S. President Donald Trump also reported "good talks" were underway, though Iran has denied seeking to resume negotiations.

Competing Market Factors

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Other geopolitical and economic factors contributed to the market's direction. In Saudi Arabia, an attack by Iran-backed Houthi militants prompted Saudi Aramco to shut down its 400,000-barrel-per-day Jizan oil refinery, a move that would reduce local crude demand, according to a note from consultancy IIR seen by Reuters.

Meanwhile, broader economic concerns are weighing on oil demand. The U.S. dollar is trading near a four-week high, making oil more expensive for holders of other currencies. Traders are also watching for a potential U.S. Federal Reserve interest rate hike this week, which could slow economic growth and curb energy consumption.

Looking Ahead to Inventory Data

Market participants are now awaiting weekly U.S. oil inventory reports from the American Petroleum Institute (API) and the Energy Information Administration (EIA). Analysts polled by Reuters estimate that energy firms withdrew 1.4 million barrels of crude from storage for the week ended July 24.