Oil reversed earlier gains on Wednesday as uncertainty over the situation in the Middle East unnerved markets and US President Donald Trump again suggested the US-Israeli war with Iran could be nearing an end.
The front-month Brent contract for June fell $1.06, or 1%, to $102.91 per barrel at 1106 GMT, having dropped to a session low of $98.35. US West Texas Intermediate crude futures for May slipped $1.44, or 1.4%, to $99.94 per barrel, after falling to $96.50 earlier.
Prices rose earlier on Wednesday but then uncertainty over the Middle East conflict prompted investors to lock in gains.
"Oil prices fell after US President Trump signalled a potential end to the war with Iran," ING said in a report.
Oil supply disruptions from the Middle East will increase in April and will hit Europe as the closure of the Strait of Hormuz hits exports further, International Energy Agency head Fatih Birol said on Wednesday.
Brent futures for June delivery settled down more than $3 on Tuesday following unconfirmed media reports that Iran's president was ready to end the war.
Trump told reporters on Tuesday that the US could end the military campaign within two to three weeks and that Iran does not have to make a deal to end the conflict, his clearest declaration yet that he wants to wind down the month-long war.
Still, analysts expect that energy flows through the Strait of Hormuz would be slow to return to levels before the conflict even if a ceasefire were announced.
"Even if the Strait reopens, clearing the vessel backlog would take time, with production, exports and LNG flows normalising only gradually rather than immediately," ING said.
According to a Wall Street Journal report, Trump has indicated he could end the war before reopening the Strait of Hormuz, the route through which 20% of global oil and liquefied natural gas trade flows.
"Even with diplomatic channels reportedly still active and intermittent comments from the US administration predicting a short end to the conflict, the combination of limited tangible diplomatic progress, continued maritime attacks and explicit threats against energy assets keeps supply risks skewed to the upside," LSEG analysts said in a note.
Illustrating the impact of the closure of the Strait of Hormuz, crude oil output from the Organization of the Petroleum Exporting Countries dropped by 7.5 million barrels per day in March compared with the previous month, as producers were forced to cut output because storage is full.
US crude oil output also fell, dropping by the most in two years in January after a severe winter storm knocked production offline, data from the Energy Information Administration showed on Tuesday.
