Crude prices retreated after both countries signaled a halt in attacks, though investors remain cautious about how long the calm will last.
Oil prices fell on Tuesday, giving back most of the gains recorded a day earlier, after Iran and Israel announced they had stopped direct attacks following an appeal from U.S. President Donald Trump.
Despite the de-escalation, both sides warned that military action could resume, keeping traders alert to further developments.
KEY DETAILS
Brent crude futures dropped $1.14, or 1.2%, to $93.11 a barrel by 0630 GMT. U.S. West Texas Intermediate (WTI) crude fell $1.30, or 1.4%, to $90.00 a barrel.
The decline followed a volatile trading session on Monday when oil prices surged as much as 5% after renewed Israeli strikes on Iran and attacks in Lebanon raised concerns about a broader regional conflict.
Market sentiment improved after Iran's armed forces announced the end of military operations against Israel. However, analysts said investors remain skeptical that the current pause will lead to lasting peace.
Iran stated it could resume strikes if Israel continues attacks on Hezbollah in Lebanon, while Israeli Prime Minister Benjamin Netanyahu warned that Israel would respond forcefully to any future Iranian aggression.
Meanwhile, Washington continues to push Tehran to reopen the Strait of Hormuz, a critical shipping route that previously carried around one-fifth of global oil supplies before the conflict escalated.
MARKET REACTION
Energy markets reacted by unwinding some of Monday's risk premium. Oil prices moved lower as fears of immediate supply disruptions eased.
The broader market remains sensitive to headlines from the Middle East, with energy stocks, commodity-linked currencies, and inflation expectations likely to remain volatile.
WHY IT MATTERS
For traders, the key issue is whether the current pause develops into a more durable agreement or proves to be another short-lived break in hostilities. Any renewed escalation could quickly push oil prices higher again.
Investors will closely watch diplomatic efforts, military developments, and any updates regarding the Strait of Hormuz. The next major move in oil markets will likely depend on whether tensions continue to cool or flare up once more.
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