Oil Prices Fall As US-Iran Talks Show Progress Amid Middle East Tensions

Oil prices closed lower on Tuesday after U.S. Vice President JD Vance said Washington and Tehran had made significant progress in ongoing negotiations, adding that neither country wanted military tensions to escalate again.

“We believe substantial progress has been made, and we think Iran is interested in reaching an agreement,” Vance told reporters during a White House briefing.

Earlier on Monday, President Donald Trump said in a social media post that a planned military strike scheduled for Tuesday had been paused. He noted that diplomatic efforts with Iran were still underway, but warned that the U.S. was prepared to resume military action if negotiations failed to produce a deal.

Oil Prices Slip Despite Ongoing Middle East Tensions

Brent futures LCOc1 for July settled down 82 cents, or 0.73%, at $111.28 a barrel. The U.S. West Texas Intermediate crude CLc1 contract for June delivery, which expired on Tuesday, settled down 89 cents, or 0.82%, to $107.77. The more-active July contract CLc2 settled down 23 cents at $104.15.

Even with Tuesday’s dip, prices remained elevated. On Monday, Brent hit its highest since May 5 and WTI its highest since April 30.

“We continue to have significant amounts of oil offline and with the regional infrastructure being in the crosshairs we are just holding our breath here until either we get a deal or another round of military action, so a pretty significant binary outcome awaits,” said John Kilduff, partner at Again Capital.

The Middle East conflict has effectively closed the Strait of Hormuz, a critical waterway that typically carries daily about a fifth of global supplies of oil and liquefied natural gas, creating the world’s biggest oil supply disruption, according to the International Energy Agency.

Iran Proposes Peace Terms As U.S. Expands Sanctions

Tehran’s latest peace proposal to the U.S. involves ending hostilities on all fronts including Lebanon, the exit of U.S. forces from areas close to Iran and reparations for destruction caused by the war, state media reported on Tuesday.

Meanwhile, the U.S. imposed sanctions on an Iranian foreign currency exchange house and what it said were front companies overseeing transactions on behalf of Iranian banks. It also blocked 19 vessels it said were involved in shipping Iranian petroleum and petrochemicals to foreign customers.

Elsewhere, Chinese state refiners have slashed oil throughput by more than 1 million barrels per day since the outbreak of the Iran war, analysts and market sources said, as disruption to crude supplies and poor margins forced them to scale back operations.

Chinese state refiners are processing 8.4 million barrels per day of crude this month, down from 8.6 million bpd in April and 9.5 million bpd in March, according to consultancy Energy Aspects. That compares with about 10 million bpd before the U.S. and Israel attacked Iran at the end of February.

Russia Refinery Hit, U.S. Extends Russian Oil Waiver

U.S. Treasury Secretary Scott Bessent extended a sanctions waiver by 30 days to allow “energy-vulnerable” countries to continue purchasing Russian seaborne oil. Separately, Russia‘s Ryazan oil refinery, which accounts for almost 5% of the country’s total refining volumes, stopped processing after a Ukrainian drone attack last Friday, two industry sources said on Tuesday.

In the U.S., a record 9.9 million barrels were drawn last week from the Strategic Petroleum Reserve, Energy Department data showed. This reduced stockpiles to about 374 million barrels, the lowest since July 2024.

U.S. crude stocks are expected to have fallen by about 3.4 million barrels in the week to May 15. The weekly data from the Energy Information Administration is due on Wednesday.

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(With Inputs from Reuters)

Disclaimer: This article is based on international market reports, official statements, and publicly available information at the time of writing. Oil prices are subject to rapid fluctuations due to geopolitical developments, global demand, sanctions, and supply disruptions. The views and projections mentioned do not constitute financial or investment advice.