Oil prices rebounded 1% on Tuesday from a plunge in the previous session, fueled by concerns that Middle East supply remains at risk as a diplomatic resolution to the US-Iran war that has disrupted shipments still seems unlikely.
Front-month Brent futures rose $1.02, or 1.2%, to $84.79 a barrel by 0632 GMT after dropping 7% in the previous session to a three-week low.
US West Texas Intermediate (WTI) crude was up 46 cents, or 0.6%, at $80.80 a barrel after falling more than 5% in the previous session to its lowest in nearly a week.
Prices dropped after US President Donald Trump said on Sunday he was holding off on new attacks on Iran pending ongoing talks to end their war and settle claims over control of the key Strait of Hormuz.
The strategic waterway, which connects Gulf oil producers to global markets, was a channel for about a fifth of global shipments of crude oil and natural gas before the conflict.
However, on Monday, Iran's Foreign Ministry spokesman Esmail Baghaei rejected Trump's claim, saying no negotiations with the US were taking place and no meetings were scheduled.
"The scale of the sell-off seems fairly overdone, given that there's still considerable uncertainty. We’ve been in this situation multiple times before, only to see things unravel," ING analysts said in a note.
"And with Iran denying that any talks are underway and Trump issuing warnings if no deal materializes, the backdrop clearly leaves ample room for a renewed escalation."
The Hormuz dispute is a central sticking-point in talks. Washington says the memorandum of understanding agreed in June required Iran to open the waterway, while Tehran says the text explicitly preserved its authority.
Analysts at Barclays said crude oil and refined product net exports through the strait averaged 4.2 million barrels per day in the week ended July 31, versus 3.2 million the previous week.
Shipping traffic at the key Gulf waterways of Bab el-Mandeb and the Strait of Hormuz held largely unchanged at the start of the week. Hormuz remains dangerous for vessels.
"With the Strait of Hormuz, it keeps a dual-chokepoint risk in the market that prevents oil from fully unwinding its geopolitical premium," said Tim Waterer, chief market analyst at KCM Trade.
