Oil prices drop almost 2% as Trump postpones planned strike on Iran.

Oil prices dropped nearly 2% on Tuesday in early Asian trading after U.S. President Donald Trump announced a pause in a planned attack on Iran to facilitate negotiations aimed at ending the Middle East conflict.

Brent crude for July delivery decreased by $1.98, or 1.8%, to $110.12 a barrel at 0628 GMT, while U.S. West Texas Intermediate crude for June delivery fell by 30 cents, or 0.3%, to $108.36.

In the previous session, the benchmarks reached their highest levels since May 5 and April 30, respectively. The June WTI contract expires on Tuesday, and the active July contract dropped $1.15, or 1.1%, to $102.23 per barrel. Trump mentioned on Monday that there was a "very good chance" the U.S. could finalize an agreement with Iran to hinder Tehran’s pursuit of a nuclear weapon shortly after announcing the military pause for talks.

"While Trump's indication has relieved some immediate pressure, fundamental risks remain... The market is now assessing whether Trump's remarks indicate a real shift toward de-escalation or simply a strategic pause," stated Tim Waterer, chief market analyst at KCM Trade. "Additionally, Iran's reactions to these recent developments and the actual activities of tankers in the Strait of Hormuz are crucial factors in determining the future direction of oil prices."

The conflict in the Middle East has effectively shut down the Strait of Hormuz, a vital waterway responsible for transporting about one-fifth of the world's oil and liquefied natural gas, heightening concerns over potential supply disruptions.

Iranian Foreign Ministry spokesperson Esmaeil Baghaei confirmed on Monday that Tehran's stance had been communicated to the U.S. through Pakistan, but did not provide more specifics. A Pakistani official, who spoke anonymously, indicated that Islamabad relayed a new proposal between the parties but observed slow progress.

"One might assume that the oil market would become increasingly desensitized to these reports," ING analysts noted in a client report. "However, the magnitude of supply disruptions is significant and growing more alarming each day that oil shipments remain halted."

In the interim, Iran’s semi-official Tasnim news agency claimed that Washington agreed to suspend sanctions on Tehran's oil exports during negotiations, although a U.S. official denied this assertion. Separately, U.S. Treasury Secretary Scott Bessent extended a sanctions exemption by 30 days to allow "energy-vulnerable" nations to keep buying Russian seaborne oil.

In the United States, a record draw of 9.9 million barrels was reported from the Strategic Petroleum Reserve last week, according to Energy Department data, bringing reserves down to approximately 374 million barrels, the lowest level since July 2024.