Crude oil prices fell sharply in early Asian trading on Tuesday, as optimism increased over progress in negotiations aimed at de-escalating the US-Iran conflict and restoring flows through the Strait of Hormuz. Moreover, traders rapidly unwound the geopolitical risk premium that had supported prices in recent months. Therefore, sentiment shifted decisively toward expectations of improved supply conditions.
West Texas Intermediate (WTI) declined more than 6%, trading at $90.55 per barrel, down $6.061 or about 6.27%. Similarly, Brent crude dropped to $96.14 per barrel, falling $6.84 or roughly 6.61%, according to market data. Additionally, regional benchmarks posted steeper losses, with Murban crude and Louisiana Light declining by more than 9% and nearly 12%, respectively.
Diplomatic signals drive expectations of supply normalization
Market participants reacted to renewed diplomatic signals suggesting progress in US-Iran discussions. Moreover, expectations grew that any agreement could eventually restore shipping flows through the Strait of Hormuz, which handles roughly one-fifth of global oil supply. Therefore, traders increasingly priced in a reduction in supply disruption risks.
However, analysts cautioned that a full normalization of exports and shipping routes would take time. Additionally, even if progress continues, operational constraints and infrastructure adjustments could delay a full recovery in flows for several months. Therefore, near-term volatility is likely to persist.
Risk premium unwinds as focus shifts to supply outlook
Earlier price gains in 2026 had been driven by heightened geopolitical tensions following conflict-related disruptions in the region. However, recent developments have triggered a rapid reversal as markets reassess the likelihood of sustained blockages. Moreover, expectations of a resumption of Iranian exports have added downward pressure on crude benchmarks.
Additionally, traders are now shifting attention toward potential oversupply conditions as inventories begin to rebuild. Therefore, the so-called geopolitical “war risk premium” has largely been unwound, even as key issues such as sanctions, nuclear constraints and regional security arrangements remain unresolved.
