Crude futures eased on Tuesday following strong gains a day earlier, caught between the influences of a diplomatic standoff over the Strait of Hormuz and ongoing Middle East security threats.
Brent futures dropped 0.6% to $87.21 per barrel, while West Texas Intermediate crude futures slipped by 0.5% to $81.76/bbl. Both contracts gained 5% on Monday.
"Uncertainty over a US-Iran deal to end the war and reopen the Strait of Hormuz has grown after Trump demanded compensation for victims of Iranian-backed conflicts, responding to Tehran's reparations demands," Saxo Bank analysts said.
"The tougher stance lowers chances of a near-term agreement and keeps markets wary, as Iran ties any Hormuz deal with Oman to a broader accord with the US and Trump opts for economic pressure over new strikes," they added.
Compounding supply anxieties, geopolitical risks escalated across multiple regions.
The United Kingdom Maritime Trade Operations reported that a cargo vessel was targeted by an unknown projectile off the coast of Al Mokha, Yemen, on Tuesday, resulting in casualties.
In North Africa, Libya's state-owned National Oil Corp. warned that it may be forced to declare force majeure and suspend operations at the Zawiya refinery following recent drone strikes targeting the facility.
Meanwhile, in Russia, the largest oil refinery in the Far East region caught fire on Tuesday due to a technical incident, though operations remained largely unaffected, according to a Bloomberg report citing a regional government statement.
Meanwhile, Kpler raised its 12-month North Sea Dated Brent forecast to $81 per barrel from $73 per barrel, citing tightening global balances driven by Middle East disruptions, while noting that weak Chinese demand continues to cap further upside potential.