Expectations that US-Iran negotiations will likely continue and open supply cause oil prices to drop.

Expectations that peace talks between the United States and Iran will take place this week and allow more supply to flow from the crucial Middle East producing region caused oil prices to fall on Tuesday, reversing gains from the previous session.

At 0300 GMT, Brent crude futures dropped 54 cents, or 0.6%, to $94.94 a barrel, while U.S. West Texas Intermediate (WTI) for May dropped $1.11, or 1.2%, to $88.50. The more active June contract was down 76 cents, or 0.9%, at $86.66, while the May contract ends on Tuesday.

Following Iran’s closure of the Strait of Hormuz, a crucial oil transportation route, and the U.S.’s seizure of an Iranian cargo ship as part of its port blockade, both benchmarks saw a sharp increase on Monday, with Brent rising 5.6% and WTI rising 6.9%.

Although there is still a danger of more fighting and disruptions to oil flows, investors are concentrating on the possibility that negotiations this week may lead to a definitive agreement or an extension of the current ceasefire.According to a note from ING analysts, “energy markets are still trading in a manner which suggests optimism over U.S.-Iran talks, even though they popped higher yesterday following Iran’s decision to reverse its opening of the Strait of Hormuz.”However, we think the continued supply disruption is being undervalued by markets. The truth of the supply shock seems to be obscured by optimism.

A senior Iranian official told Reuters on Monday that Iran is considering taking part in peace negotiations in Pakistan in response to Islamabad’s attempts to lift the U.S. boycott.

With the two-week ceasefire scheduled to expire this week, the blockade has made it extremely difficult for Tehran to resume peace efforts.In a note, Citi analysts stated, “We continue to lean toward an MOU being signed and/or the ceasefire being extended this week, potentially evolving into a broader agreement.” “That said, we remain prepared to pivot toward a more protracted disruption scenario should negotiations falter this week.”

Iranian Foreign Minister Abbas Araqchi stated that “continued ⁠violations of the ceasefire” by the United States are a barrier to future negotiations, underscoring the uncertainty surrounding the talks. The Iranian official emphasized that no decision has been taken to participate.

Separately, Iran’s Speaker of Parliament and chief negotiator, Mohammad Baqer Qalibaf, reaffirmed that Tehran will not engage in negotiations under duress.

On Monday, there was little shipping activity through the Strait of Hormuz, which is a route for around one-fifth of the world’s oil supply.

According to Citi, if the strait’s delays continue for a another month, the total losses could increase to roughly 1.3 billion barrels, with prices probably approaching $110 per barrel in the second quarter of 2026.

Because of the closure of the strait, Kuwait announced force majeure on oil exports, according to Bloomberg News.

According to a client note from Societe Generale analysts, the strait closure’s higher prices have reduced oil consumption by roughly 3% thus far.

It stated that the risk is “skewed toward larger losses the longer normalization is delayed” and that “full normalization” won’t be available until late 2026.