Oil prices experienced declines for the second day in a row on Tuesday, as diplomatic efforts to ease tensions in the Middle East gained momentum. Brent crude, the international benchmark, dropped 1.7%, closing at $113.88 a barrel, while U.S. West Texas Intermediate futures fell 1.8%, settling at $99.90 a barrel. These price movements followed discussions between Iran’s Supreme Leader Mojtaba Khamenei and top security official Mohsen Rezaei regarding Iran’s terms for ending conflict with the U.S., signaling a possible shift from the prolonged state of “neither war nor peace.”

On Monday, high-level talks took place in Tehran involving Saudi Arabia’s defense minister, Iran’s President Masoud Pezeshkian, and senior military and intelligence figures from Pakistan and Turkey, countries allied with Saudi Arabia. These discussions aimed at de-escalating regional hostilities amid ongoing attacks by Iran-aligned Houthi militants on Saudi energy infrastructure and civilian targets. The diplomatic engagement has been hailed by Iran’s foreign ministry as a positive step toward regional security cooperation and additional consultations.

Meanwhile, U.S. President Donald Trump remains at a crossroads, contemplating whether to pursue a diplomatic agreement with Iran or to escalate military actions, as he conveyed in a recent Fox News interview. Despite some increases in Middle East oil exports since the conflict began, UBS analyst Giovanni Staunovo advises that the oil market has yet to fully stabilize. Risks persist due to vulnerabilities of vessels transiting the Strait of Hormuz, rising freight and insurance costs, and the need for tanker capacity for ship-to-ship transfers.

Staunovo also highlighted the depletion of global oil inventories by roughly 500 million barrels since February, and the end of government releases from strategic reserves. He forecasts a further sharp drop in commercial supplies unless security improves. Given that visible inventories remain at multi-year lows, he warns that oil prices are likely to stay elevated for an extended period, as stockpiles must be replenished once the regional conflict is resolved. This outlook underscores ongoing market sensitivity to geopolitical developments in the Middle East.