-- Crude oil futures retreated in midday trading on Tuesday after US Defense Secretary Pete Hegseth said a fragile ceasefire with Iran remained in place, despite a series of missile and drone attacks in the UAE this week.
Front-month West Texas Intermediate crude futures fell by 4.12% to $102.01 per barrel, while Brent futures were down by 3.85% to $110.00/bbl.
"Oil prices edged lower after a sharp rally... as markets reacted to renewed US-Iran clashes that cast doubt on the fragile ceasefire," said Soojin Kim, research analyst at MUFG.
The UAE's Defense Ministry said on Tuesday that its air defenses were dealing with missile and drone attacks from Iran after four weeks of relative calm since President Trump announced a ceasefire.
The second day of attacks on the UAE came after Iran's Revolutionary Guards Navy Corps issued a map it said was expanding the areas under Tehran's control near the Strait to include the UAE's ports of Fujairah and Khorfakkan, as well as the coast of the UAE's emirate of Umm Al Quwain.
"Markets may find some relief today following President Trump's overnight comments suggesting the conflict could continue for another two to three weeks," ING strategists said in a note Tuesday.
The analysts said markets are likely to view this with considerable skepticism, given the recent escalation and the repeated extensions of projected timelines for ending hostilities.
US Defense Secretary Pete Hegseth said the operation to protect commercial ships was temporary and that the four-week-old truce was not over.
"We're not looking for a fight", Hegseth said at a press conference on Tuesday. "Right now the ceasefire certainly holds, but we're going to be watching very, very closely".
Hegseth said the US had secured a path through the Hormuz and that hundreds of commercial ships were lining up to pass through.
Danish shipping giant Maersk reportedly said one of its commercial vessels successfully transited the Strait under US military protection.
"US forces said they repelled Iranian attacks while escorting two US-flagged ships, and the UAE reported intercepting missiles and a fire at its Fujairah oil terminal," Saxo Bank strategists said in a note Tuesday.
Trump said on Tuesday dismissed Iran's military capability and said Tehran "should wave the white flag of surrender", but is too proud to do so.
Meanwhile, the Iranian Foreign Minister, Abbas Araghchi, said in a social media post on X that talks with the US were "making progress," but Washington and the UAE "should be wary of being dragged back into a quagmire."
Araghchi said events in Hormuz made clear "there's no military solution to a political crisis."
On the supply front, OPEC+ agreed on Sunday to increase oil output by 188,000 barrels per day at the group's first meeting since the loss of its key member, the UAE.
Sultan al Jaber, managing director and Group CEO at Adnoc, said exit from OPEC gives it greater ability to accelerate investment and expand.