Global crude oil prices dropped sharply on Tuesday, with West Texas Intermediate falling below $90 per barrel and Brent crude slipping under $93, as investors unwound geopolitical risk premiums following a fragile ceasefire between Iran and Israel and renewed signals from Washington that a diplomatic resolution to the wider US-Iran conflict may be within reach.

WTI crude fell more than 2 per cent to trade under $90 per barrel while Brent dropped more than 2 per cent to below $93, erasing most of the previous session’s gains which had been driven by fears of fresh escalation after Iran and Israel exchanged strikes over the weekend.

The retreat was accelerated after President Donald Trump urged both sides to de-escalate, confirmed that talks with Tehran were continuing, and indicated that oil prices should ease once the conflict is resolved.

The US-Iran war, which began on February 28, has been the dominant force driving global oil markets for months, with energy prices surging more than 45 per cent from pre-war levels as the conflict effectively closed the Strait of Hormuz the critical shipping lane that accounted for roughly 20 per cent of global energy supply before the fighting began.

Tuesday’s decline was the latest in a broader retreat that has seen Brent plunge nearly 19 per cent in May alone, its worst monthly performance since the Covid-19 pandemic, as diplomatic momentum has gradually gathered pace.

Optimism around a settlement has been building since late May, when US and Iranian negotiators were reported to have mostly agreed on a 60-day memorandum of understanding to extend the ceasefire and open fresh talks on Iran’s nuclear programme, though the deal still awaited formal sign-off from Trump. Secretary of State Marco Rubio had also said the United States would give diplomacy “every chance to succeed,” further calming markets. Iran and Israel’s decision to halt attacks against each other on Tuesday, despite the weekend’s flare-up, reinforced the view that negotiations remained on track.

However, analysts cautioned that the path to fully normalise oil markets remains uncertain. The Strait of Hormuz is still effectively closed under a dual blockade maintained by the US and Iran, severely disrupting shipments of crude, refined fuels, and natural gas. Industry veterans noted that even if an agreement is reached immediately, it could take at least four months to ramp oil flows back to 80 per cent of normal levels, with full normalisation potentially delayed until the first or second quarter of 2027.

Saudi Aramco CEO Amin Nasser warned that if the Strait’s reopening is delayed by a few more weeks, market rebalancing will extend well into 2027.

Adding further downward pressure on prices, OPEC+ approved an increase in July production quotas of 188,000 barrels per day, while fresh data showed China the world’s largest oil importer had aggressively drawn down domestic inventories instead of seeking overseas supply, limiting demand pressure on global markets.

Bob Parker of the International Capital Markets Association said prices were likely to remain in the $90 to $100 range for the next couple of months until there is greater clarity on any lasting peace agreement, warning of “inevitable” investor scepticism towards the ongoing negotiations.