Oil prices fell for a second day on Wednesday on expectations peace talks between the US and Iran may resume and supply will eventually be released from the key Middle East producing region trapped by the closure of the Strait of Hormuz.
Brent crude futures were down16 cents, or 0.2%, to $94.63 a barrel at 0635 GMT, after falling 4.6% in the previous session. US West Texas Intermediate crude was down 70 cents, or 0.8%, to $90.58. The contract dropped 7.9% the session before.
The war has mostly shut the Strait of Hormuz, a key waterway for crude and refined product flows out of the Gulf to global buyers, particularly in Asia and Europe.
US President Donald Trump said talks with Tehran on ending the war could resume this week after ending over the weekend without any agreement. But the US has also enacted a blockade of shipping leaving Iranian ports that its military said on Wednesday has completely halted trade going in and out of the country by sea.
Despite a two-week ceasefire, transit through the strait remains uncertain, with traffic at only a fraction of the 130 or so vessels that moved through the waterway before the war, sources said on Tuesday.
"The trajectory of oil prices will likely hinge less on battlefield developments and more on diplomatic momentum. Markets are increasingly reacting to headlines around negotiations rather than troop deployments," said Priyanka Sachdeva, senior market analyst at Phillip Nova.
"Each signal of renewed dialogue has been met with price declines, suggesting that traders are systematically unwinding the 'war premium' embedded into crude earlier this month."
Refiners are desperately seeking alternative crude supply, pushing the premiums they are willing to pay for oil from areas such as the US Gulf Coast and North Sea.
A cargo of WTI Midland for delivery to Rotterdam traded at a record premium of $22.80 a barrel above benchmark European prices on Tuesday.
A US destroyer stopped two oil tankers from leaving Iran on Tuesday, a US official said.
"While diplomatic headlines suggest the possibility of renewed US-Iran talks and even a temporary easing of transit restrictions, the physical reality remains fragmented," the Schork Group said in a note.
The market stands to lose some access to further supply after two US administration officials told Reuters on Tuesday the US will not renew a 30-day waiver of sanctions on Iranian oil at sea that expires this week, and quietly let a similar waiver on sanctions on Russian oil expire over the weekend.
Later in the day, markets will be watching for official US inventory data from the Energy Information Administration due at 10:30 a.m. ET (1430 GMT).
US crude oil stockpiles were expected to have risen slightly last week, while distillate and gasoline inventories likely fell, a Reuters poll showed.
Market sources familiar with American Petroleum Institute figures said on Tuesday US crude oil inventories jumped for the third straight week.
