Oil prices extended their losses on Tuesday, a day after both major benchmarks fell more than 2%, as investors concluded that new United States sanctions against Iran are unlikely, for now, to cause major disruptions to global supply.
Brent crude, the global benchmark, was down about 0.8% at $89.82 a barrel, while US West Texas Intermediate (WTI) crude traded at $84.37, a loss of roughly 0.75%.
The fresh decline followed a sharp correction on Monday, when both contracts dropped more than 2%. WTI touched a one-week low as investors locked in profits after a strong rally over the previous two weeks.
The market appears to be treating Washington's latest moves as economic rather than military escalation, which has limited fears of an immediate disruption to oil flows from the Middle East.
Sanctions Expanded, Military Option Not Ruled Out
US Treasury Secretary Scott Bessent announced on Monday an expansion of sanctions aimed at curbing Iran's economic activity and pressuring Tehran to end the war. At the same time, Defense Secretary Pete Hegseth said the military option against Iran was not off the table.
Even so, the fact that Washington is leaning toward economic pressure rather than direct military confrontation appears to have eased, at least temporarily, fears of a sharp cut in supply.
Analysts at ING said the market seemed largely unaffected by Washington's effort to step up economic pressure on Iran, suggesting investors were treating the new measures as having a limited impact on prices.
Tanker Struck Near Oman
Geopolitical risks nonetheless remain. A tanker was hit by an unidentified projectile on Tuesday and left immobilized about nine nautical miles northeast of Ras al Sikhah in Oman, according to UK Maritime Trade Operations.
The incident has revived concerns over shipping safety in the region, with the Strait of Hormuz remaining the biggest source of uncertainty for the market. Before the war began, cargoes passing through the strait accounted for roughly 20% of global oil consumption.
Iran continues to insist it controls the strait. On Monday it warned 45 tankers that Tehran said had violated transit rules, threatening to seize their cargoes.
US Stockpiles Add to Pressure
Inventory levels are also weighing heavily on the market. Crude stocks in the US Strategic Petroleum Reserve (SPR) fell by about 3.7 million barrels last week to 289.7 million barrels, the lowest level since November 1982.
The drop is a reminder that the market turmoil caused by the US-Israel war with Iran has already forced significant drawdowns from both commercial and strategic reserves.
For now, though, the market is placing more weight on the absence of immediate military escalation and the expectation that oil flows will continue uninterrupted.
Following weeks of rallying, oil is now in a phase of correction and profit-taking, with investors weighing geopolitical risk against the real effect of sanctions on physical crude flows.
The market is still holding a geopolitical premium in prices, since any serious disruption to shipping or to the Strait of Hormuz could quickly reverse the current picture.
