Oil prices lost more than 1% on Tuesday as markets weighed reports of mediation efforts between the U.S. and Iran against an exchange of fresh attacks between the two and threats of a naval blockade of Saudi Arabia by Yemen's Houthis. Brent crude futures fell $1.21, or 1.4%, to $88.01 a barrel by 0815 GMT. The Reuters Power Up newsletter provides everything you need to know about the global energy industry. Sign up here. The front-month U.S. West Texas Intermediate crude contract , which expires on Tuesday, was down 94 cents, or 1.1%, at $82.29. The more active contract for September delivery dropped 95 cents, or 1.2%, to $81.53.
"There's some hope of de-escalation between the U.S. and Iran. Reports are that mediators are proposing a 10-day ceasefire, which could put the memorandum of understanding (MoU) back on track," ING analysts said in a note, referring to the interim deal negotiated in June. However, major differences remain between Washington and Tehran while U.S. President Donald Trump has warned of retaliation after several U.S. soldiers were killed, ING added. A senior Iranian official told Reuters that Tehran had received a proposal from mediators for a 10-day ceasefire in efforts to salvage the deal signed on June 17, intended to pave the way for a lasting agreement to end the war that began on February 28 with U.S.-Israeli attacks on Iran.
The diplomatic push followed another night of U.S. strikes on Iranian cities and attacks by Iran's Revolutionary Guards on U.S. military assets across the region. Later on Monday U.S. Central Command said it had begun another round of strikes on Iran. "The optimist may see the latest American attacks as a last attempt to strengthen the negotiating position before a compromise is reached and the Strait of Hormuz is reopened," an SEB Research note said.
"However, the risk is a more prolonged stalemate, with continued uncertain energy flows, higher oil prices and recurring attacks." A tanker in the Strait of Hormuz reported being struck by an unknown projectile, forcing its crew to abandon ship and board a lifeboat, the United Kingdom Maritime Trade Operations agency said on Tuesday. Vessel crossings via the strait also dropped further after fresh U.S. and Iranian attacks.
Yemen's Iran-aligned Houthis, meanwhile, said on Monday that they would impose a naval blockade on Saudi Arabia, opening a potential new front against the U.S. in its war on Iran and raising the threat to global energy supplies and trade beyond the Gulf. "The threats of a naval blockade on Saudi Arabia by the Houthis are significant because they raise the risk of disruption to another major oil exporter," said Tim Waterer at KCM Trade.
