Oil fell sharply on signs Washington and Tehran are seeking to arrange a second round of peace talks.

Brent fell 4.6% to settle below $95, while West Texas Intermediate dropped 7.9% to settle near $91. The aim is to hold further discussions before an April 7 ceasefire expires next week, people familiar with the matter said. Iran is also said to be considering a short-term pause to its shipments through the Strait of Hormuz to avoid testing a US blockade and scuppering a fresh round of peace talks.

An end to the war — and the reopening of the vital waterway — would allow the world to begin replenishing hundreds of millions of barrels lost through the conflict that has stretched over six weeks. The consequences of the war on energy markets may still be felt through the coming months and years, experts have warned.

“Crude is lower on talk-driven optimism around potential negotiations and Hormuz normalization, but price action is being driven by positioning and technicals more than fundamentals,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth Group. “This is a market that fears the next headline.”

Physical oil prices remain near record highs, with the world’s most important gauge trading above $120 a barrel. That reflects severe near-term shortages in the market, especially in Asia and Europe.

And as traders keep a close eye on flows through the Strait of Hormuz, no vessels have made it past the US blockade in the area, Central Command said in a post on X. Six merchant vessels complied with instructions to turn around and re-enter an Iranian port, the US said Tuesday.

Adding to the pressure on Iran’s oil revenue, the US will also allow a waiver temporarily authorizing the purchase of certain Iranian crude oil to expire this weekend, according to a White House official.

Still, the world is staring down an energy crisis even if the war ends soon. The International Energy Agency warned the conflict is set to wipe out oil demand growth this year, resulting in the first annual decline since the pandemic. The head of the body said Monday that prices aren’t yet reflecting the unprecedented scale of the crisis.

The war has damaged key infrastructure and prompted Iran to effectively halt traffic through the Strait of Hormuz, triggering an energy supply shock.

Both gasoline and diesel retail prices in the US have risen to their highest seasonal levels on record. Meanwhile, jet fuel and diesel prices in Europe have soared to all-time or near-record highs above $200 a barrel.

Acknowledging the pain for US consumers caused by spiking gasoline prices, Vice President JD Vance — who led the US delegation in unsuccessful talks with Iran last weekend in Pakistan — said the blockade imposed on Tehran’s oil increased US leverage for negotiations.

“I do think that we’re in a place where we’ve accomplished our objectives,” Vance told Fox News. “We can start to wind this thing down.”

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