Brent crude fell about 3% on Tuesday to around $89 a barrel, extending losses from the previous session as traders took profits after a strong rally and largely brushed aside the immediate impact of the latest U.S. sanctions on Iran.
Brent fell to about $89.37 a barrel, down 3.04% from the previous day, according to the CFD-linked benchmark tracking Brent crude. The decline followed a 2.4% drop in the previous session.
The retreat came after a sharp rally in oil prices over the past two weeks, driven by heightened concerns over supply disruptions linked to the conflict involving Iran and the continued uncertainty around the Strait of Hormuz.
The latest decline suggests that some of the geopolitical risk premium built into crude prices is now being unwound as investors reassess the likelihood of a prolonged disruption to oil supplies.
U.S. Treasury Secretary Scott Bessent on Monday announced further measures aimed at increasing economic pressure on Iran, warning countries and companies trading with Tehran that they would be given a period to wind down their dealings or risk unilateral penalties.
The measures, however, were less disruptive to oil markets than investors had feared.
Rather than immediately targeting the physical flow of large volumes of Iranian crude, the latest measures focused on expanding economic and financial pressure on Tehran. That reduced the likelihood of an immediate additional supply shock, leaving traders with less reason to add to the risk premium already embedded in oil prices.
The market is also watching developments in Iran’s diplomatic engagement with Pakistan.
Pakistan’s army chief concluded a one-day visit to Tehran on Tuesday as Islamabad sought to help reduce tensions between Iran and the United States. The visit has raised expectations that diplomatic efforts could eventually lead to an easing of restrictions around the Strait of Hormuz.
Any credible progress towards reopening the waterway would be significant for global oil markets because of the volume of crude and petroleum products that normally passes through the strait.
For now, however, investors remain cautious about whether diplomacy will produce a lasting agreement.
The decline in Brent also reflects profit-taking following the recent rally. Oil prices had risen sharply as traders priced in the possibility of prolonged disruptions to regional supplies, creating room for investors to lock in gains once the immediate threat of further escalation appeared to diminish.
The market is therefore balancing two competing forces.
On one side are continuing risks to oil supplies from the Iran conflict, restrictions around Hormuz and uncertainty over the ability of Iranian crude to reach international buyers.
On the other are signs that the crisis could eventually be contained through diplomacy, alongside weaker-than-feared U.S. sanctions and signs of softer demand from China.
China remains particularly important to the outlook because it is Iran’s main crude buyer. Any decision by Washington to impose significantly tougher secondary sanctions on Chinese companies or financial institutions could put renewed pressure on Iranian exports and potentially push oil prices higher.
For now, traders appear to be treating the latest U.S. measures as an economic pressure campaign rather than an immediate threat to global physical oil supplies.
Brent remains substantially higher than a year ago despite Tuesday’s decline. At around $89.37 a barrel, the benchmark was up about 1.14% over the past month and 33.98% year-on-year, according to the CFD-linked price data.
The sharp fall therefore represents more of a pullback from elevated levels than a complete reversal of the oil market’s geopolitical risk.
