Oil slips as Iran reviews proposed US peace agreement

Oil prices declined on Tuesday, giving back part of the strong gains recorded in the previous session, as Iran reviewed a proposed US agreement aimed at ending the conflict between the two countries, according to Iran’s Mehr News Agency.

Brent crude futures fell by $1.13, or 1.2%, to $93.85 per barrel by 11:30 GMT, while US West Texas Intermediate crude dropped $1.09, or 1.2%, to $91.07 per barrel.

Both benchmarks had surged more than 5% on Monday after posting losses exceeding 16% during May, driven by market optimism over the possibility of a peace agreement.

US President Donald Trump said on Monday that negotiations with Iran remain ongoing and expressed confidence that an agreement could be reached next week to extend the ceasefire and reopen the Strait of Hormuz.

A source cited by Mehr News Agency said that Iran has not yet responded to the final draft of the proposed temporary agreement.

Focus shifts to the Strait of Hormuz and oil inventories

Despite developments in the negotiations, Giovanni Staunovo, an analyst at UBS, noted that oil flows through the Strait of Hormuz remain constrained due to the ongoing conflict in the region.

Separately, the head of the oil industry and markets division at the International Energy Agency warned on Tuesday that global oil inventories could fall to critically low or historically tight levels ahead of peak summer demand if current stock drawdowns continue.

An executive at the Abu Dhabi National Oil Company also suggested that August could mark a turning point toward higher oil prices if demand recovers while supply disruptions linked to the conflict with Iran persist.

Tim Waterer, Chief Market Analyst at KCM Trade, said that the market is currently focused on whether negotiations between Washington and Tehran produce tangible progress or setbacks, as well as on the tone of statements issued by both sides, particularly Iranian threats regarding the Strait of Hormuz and actual tanker traffic through the waterway.

He added that the direction of negotiations will determine whether the current geopolitical risk premium remains embedded in oil prices or begins to fade.

Major disruption to global energy flows

Since the outbreak of the conflict, Iran has effectively imposed restrictions on most non-Iranian shipping entering and leaving the Gulf, disrupting roughly one-fifth of global oil and liquefied natural gas flows and driving prices more than 50% higher.

At the same time, the United States continues to maintain a blockade on Iranian ports.

Lebanon announced a partial ceasefire between Hezbollah and Israel on Monday, representing a limited de-escalation within the broader conflict that helped ignite the wider war involving Iran.

US inventories expected to decline

According to a preliminary Reuters survey, US crude oil inventories are expected to have fallen by approximately 3.6 million barrels in the week ending May 29, extending the decline recorded in the previous week.

Gasoline and distillate inventories are also expected to have decreased.

Fresh escalation in Ukraine

In a separate development, Russia launched large-scale attacks on Ukrainian cities early Tuesday using hundreds of drones and dozens of missiles. Ukrainian authorities said the strikes killed 18 people and injured more than 100 others.