Oil prices remained under pressure on Tuesday after falling almost 3% in the previous session. Investors continued to assess progress in US-Iran peace negotiations and the temporary easing of restrictions on Iranian crude exports.
Brent crude futures for August delivery slipped 0.3% to $77.70 per barrel. Meanwhile, West Texas Intermediate crude traded broadly unchanged at $73.92 per barrel.
Oil Prices Struggle After Sharp Selloff
The latest weakness followed a steep decline driven by expectations that supply risks in the Middle East could continue to ease.
Traders have started removing part of the geopolitical risk premium previously built into oil prices. The shift follows improving diplomatic conditions and fewer concerns about major supply disruptions.
US Temporarily Eases Iranian Oil Sanctions
Market sentiment changed after Washington issued a 60-day general licence covering the sale, delivery and import of Iranian crude oil and petroleum products.
The temporary measure forms part of the continuing negotiations between the United States and Iran.
The licence also covers banking, insurance and shipping services connected to Iranian oil transactions. This could make it easier for Iran to reach additional international buyers.
US-Iran Peace Talks Show Progress
US and Iranian officials have reported progress toward a wider peace agreement.
The two sides are also discussing an extension of the interim ceasefire framework. Iranian officials described the latest round of negotiations as achieving major progress.
Media reports indicated that Tehran had secured temporary relief for its oil and petrochemical exports while talks continue.
A broader agreement is expected to be pursued during the 60-day period covered by the sanctions waiver.
Iranian Oil Exports Could Increase
The relaxation of sanctions has raised expectations that Iranian crude exports could increase over the coming weeks.
ING analysts said Iran had already begun expanding exports after the removal of the US blockade. The new waiver could now give the country access to more markets.
An increase in Iranian oil sales would add further supply to the global market. This prospect is weighing on prices as concerns about immediate shortages continue to decline.
Strait of Hormuz Risks Begin to Ease
The possibility of more Iranian barrels reaching the market has overshadowed the remaining geopolitical risks.
Oil prices previously climbed above $120 per barrel at the height of the conflict. Disruptions to shipping through the Strait of Hormuz created fears of a major interruption to global energy supplies.
However, transit conditions have since improved. Diplomatic progress has also reduced expectations of prolonged disruption across the strategic waterway.
Traders Remove Geopolitical Risk Premium
As shipping conditions improve, traders are reducing the additional premium previously attached to oil prices because of regional instability.
The market is now focusing less on the immediate threat of disrupted supplies and more on the possibility of additional Iranian exports.
Nevertheless, the speed at which normal oil flows through the Strait of Hormuz can be restored remains an important uncertainty.
ING analysts said the pace of normalisation through the waterway will be a key factor influencing the oil market outlook.
Oil Market Watches Supply Developments
The direction of oil prices will depend heavily on the next stages of the US-Iran negotiations.
A final agreement and sustained improvement in shipping conditions could place further downward pressure on crude prices.
However, any breakdown in negotiations or renewed disruption in the Strait of Hormuz could quickly restore geopolitical risk premiums and increase volatility.
