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Oil prices reversed course Tuesday as traders reacted to growing expectations that U.S.-Iran peace talks could take place this week, raising the possibility of increased crude flows from a critical Middle East supply region already rattled by conflict and disruption.

The shift comes after a sharp rally in the previous session, underscoring how quickly geopolitical developments are swinging global energy markets between fear and relief.

Market Momentum Turns as Supply Expectations Rise

Brent crude futures slipped 14 cents to $95.34 a barrel at 0910 GMT. U.S. West Texas Intermediate for May dropped $1.57, or 1.8%, to $88.04. That contract expires Tuesday, while the more-active June contract eased 20 cents to $87.21.

The pullback follows Monday’s surge, when Brent jumped 5.6% and WTI climbed 6.9% after Iran again shut the Strait of Hormuz and the U.S. seized an Iranian cargo ship amid escalating port restrictions.

That volatility highlights how fragile sentiment remains in a market heavily exposed to Middle East supply risks.

Diplomatic Signals Drive Speculation

Investors are now watching closely to see whether this week’s expected negotiations could extend the current ceasefire or move toward a longer-term agreement. Even so, traders warn that supply disruptions remain a serious risk.

"The market (is) inclined to believe that, before the expiration of the ceasefire tomorrow, at least an extension will be reached between the U.S. and Iran, and that the Israeli–Palestinian talks scheduled for Thursday will not disappoint either,"

said analyst Tamas Varga at PVM Oil Associates.

Still, uncertainty continues to cloud the outlook. An Iranian official said no decision has been made to attend talks, while Iranian Foreign Minister Abbas Araqchi pointed to ongoing tensions.

"continued violations of the ceasefire" by the U.S. is a hindrance to further negotiations.

Strait of Hormuz Under Pressure as Global Supply Risk Builds

Shipping through the Strait of Hormuz, a critical corridor handling about one fifth of global oil supply, remained limited on Monday. The disruption has intensified concern across energy markets already sensitive to supply shocks.

EU Energy Commissioner Dan Jorgensen warned that even under a best case scenario, Europe could face a difficult summer due to fuel shortages.

Analysts are also raising the stakes. Citi warned that if disruptions continue for another month, total losses could reach about 1.3 billion barrels, with prices potentially climbing near 110 dollars in the second quarter of 2026.

New Front in Russia Adds to Supply Uncertainty

Meanwhile, firefighters continued battling a fire at Russia’s Black Sea port of Tuapse more than 24 hours after a Ukrainian drone strike, according to local authorities.

Tuapse is a major southern export hub and home to a key oil refinery of the same name owned by Rosneft (ROSN.MM), a critical node in Russia’s energy export system.

The incident adds another layer of uncertainty to an already strained global supply chain.

U.S. Data and Export Trends Could Shift Price Direction

Markets are also awaiting the latest U.S. Energy Information Administration weekly oil report. Data for the week ending April 10 showed crude, gasoline, and distillate inventories all fell, driven by declining imports and rising exports.

PVM analyst Tamas Varga said export trends could become a key price driver.

A continued rise in U.S. crude oil and product exports would confirm the scarce availability of oil in the Far East and Europe and could provide renewed support to oil prices.

As geopolitical tensions, shipping disruptions, and shifting supply dynamics collide, oil markets remain locked in a volatile balance between easing fears and looming supply shocks.