Crude oil prices extended their decline for another session on Tuesday after diplomacy efforts between Saudi Arabia and Tehran picked up, but still traded near $115 per barrel levels.
Global benchmark Brent Crude was down 0.73% to $114.94 per barrel, while West Texas Intermediate traded 0.72% lower at $101.05 per barrel.
The slight relief came as Saudi Defense Minister Prince Khalid bin Salman held a meeting with with Iranian President Masoud Pezeshkian in Tehran on Monday.
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The talks were held after repeated attacks by Yemen-based and Iran-backed Houthi militants on Saudi Arabia in recent weeks.
Additionally, senior officials from Pakistan and Turkey also joined the de-escalation discussions in Tehran.
Separately, Russian President Vladimir Putin is expected to with his Iranian counterpart, Masoud Pezeshkian, as well as Qatar's Emir Sheikh Tamim bin Hamad Al Thani, on the sidelines of an energy summit in Moscow on Tuesday.
Despite negotiation efforts, risks to energy supply linger prominently and shipping costs remain elevated.
US President Donald Trump said that he expected the price of oil to go "much much higher", adding that he was "fully prepared" to do it as they "really had no choice."
Addressing the Iran war in an election rally in Mississippi, Trump stated that he never really liked the temporary ceasefire between the warring blocs.
Elsewhere, Hezbollah is preparing for a new regional war in Lebanon after receiving funds from Iran, Reuters reported. The Saudi-led coalition said that it destroyed three drones in Riyadh, which followed clashes involving Tehran-backed Houthi rebels.
Brent has suged about 90% this year as the war disrupted energy supplies and expanded to involve Yemen's Houthi rebels. The risk of further attacks on energy infrastructure and shipping routes remains a concern for markets, even as crude shipments through the Strait of Hormuz have recovered to near prewar levels.
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The $200 Per Barrel Threat
The market broadly agrees that the worst-case scenario for commodities, feared at the start of the US-Iran war in March this year, has failed to materialise. The worst that the oil market witnessed was in April-end, when Brent futures had climbed to as high as $126 a barrel. Despite the conflict still underway—with both sides appearing on the edge of escalating their military offensives—crude has met a stiff resistance at $110.
That extreme scenario of oil hitting $200, that faded over the summer, is now back in the conversation. The world's biggest independent oil trader says only a makeshift shipping arrangement is keeping it at bay. Meanwhile, crude stocks in the Middle East and the West are near their limits.
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