Oil prices dropped about 2% on Wednesday, adding to the previous session's losses, on fresh hopes the Strait of Hormuz could reopen after Iran said it had resumed talks with neighbour Oman on managing the strategic waterway.
Brent crude futures fell $1.78, or 2.0%, to $86.80 a barrel by 0027 GMT, while U.S. West Texas Intermediate crude futures were down $1.49, or 1.8%, at $80.87. Both benchmarks lost more than 3% on Tuesday.
"The market continues to react to developments surrounding navigation through the Strait of Hormuz, and hopes for progress in talks between Iran and Oman have triggered selling," said Mitsuru Muraishi, an analyst at Fujitomi Securities.
"That said, uncertainty over the outlook has prompted bargain buying, limiting further losses, and prices are likely to remain range-bound for the time being," he added.
Iran said it had restarted talks with Oman to manage the Strait as it faces heightened economic pressure from U.S. President Donald Trump.
Iran and Oman have been in on-and-off talks for weeks about controlling traffic through the waterway, which handled one-fifth of global oil and liquefied natural gas shipments before the war began in February.
The two countries said on Tuesday that they discussed "a joint temporary navigational corridor" through the strait and agreed to clear it of mines.
Despite the ongoing tensions, the U.S. is beginning to send personnel back to some diplomatic missions in the Middle East that were evacuated or downsized amid tensions with Iran, two people familiar with the matter told Reuters.
The move suggests Washington sees a lower risk of the conflict with Iran escalating in the near term, though some embassies will initially operate below full capacity.
On Monday, Washington expanded sanctions aimed at cutting off Iran's economic lifeline, threatening to punish countries that continue to do business with Tehran, though it said it would not impose penalties immediately.
Separately, an oil tanker was struck on Tuesday by an unidentified projectile and disabled about 9 nautical miles (17 km) northeast of Oman's Ash Shishah, which lies at the entrance to the strait, the United Kingdom Maritime Trade Operations said.
In the U.S., the American Petroleum Institute reported crude oil inventories rose by about 4.2 million barrels in the week ended August 21, market sources said.
Analysts polled by Reuters estimated crude oil stockpiles would rise by about 600,000 barrels on average. Official data from the EIA, the statistical arm of the U.S. Department of Energy, are due at 10:30 a.m. ET (1430 GMT) on Wednesday.
