Oil prices extended a two-session decline on Tuesday as traders removed the geopolitical premium built during renewed US-Iran fighting, even though shipments through the Strait of Hormuz remain constrained.
Brent crude settled Monday at $88.36 a barrel, down 8.7%, while West Texas Intermediate fell 7.5% to $82.61.
Selling continued in Asian trading on July 28, pushing Brent as low as $86.89 and WTI to $81.16, their weakest levels since July 20.
The 10% retreat reflects a lower probability of escalation rather than proof that Gulf oil flows have normalised.
Diplomacy strips the war premium from crude
The selloff followed Washington’s decision to pause strikes against Iran after nearly two weeks of renewed attacks.
Tehran indicated that it would suspend retaliation while the US pause held, creating room for negotiations.
President Donald Trump said the US was holding “good talks” with Iran. He also warned that military action could resume if diplomacy failed, while Iranian officials issued similar warnings.
“Hopes are rising that a genuine diplomatic path may be opening,” IG Markets analyst Tony Sycamore said. Futures prices adjust to changing probabilities before governments sign formal agreements.
Brent had traded above $100 during the previous week as disruption around Hormuz spread towards the Red Sea.
The subsequent fall combines de-escalation hopes, profit-taking and concern that high energy costs were weakening demand, particularly in Asia.
The pause remains provisional. Diplomatic terms are unclear, and another strike on ships or export terminals could quickly restore the premium removed over the past two sessions.
Hormuz traffic remains far from normal
The physical market offers less reassurance than futures prices.
Barclays said net crude and refined-product exports through Hormuz averaged 2.9 million barrels a day in the week ended July 24, down from 5.9 million barrels a day a week earlier.
Shipping companies still face security threats, expensive insurance and uncertainty over whether the pause will hold.
War-risk insurers have restricted some coverage for vessels linked to Saudi cargoes in the Red Sea, where Houthi attacks threaten the alternative route around Hormuz.
“Any rebound in flows through the Strait of Hormuz is likely to prove slow and partial,” MST Marquee analyst Saul Kavonic said in comments carried by Reuters.
Shippers need greater confidence in vessel safety before sending additional empty tankers into the waterway, he added.
India’s Mangalore Refinery and Petrochemicals has provided a practical example of continuing caution.
The state-controlled refiner instructed suppliers in a spot tender to avoid both Hormuz and the Red Sea when delivering up to one million barrels of crude.
Financial traders can unwind risk positions within minutes.
Restoring vessels, insurance capacity and refinery supply chains can take days or weeks, leaving a gap between headline prices and physical conditions.
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