While US President Donald Trump warned on Tuesday that he could "annihilate" Iran, he also said his envoys Steve Witkoff and Jared Kushner had held productive talks with mediators of Iran to end the war.
"I think there's a lot of momentum for them to make a deal," Trump said.
Optimism around improved supply and a push to end the nearly seven-month conflict drove benchmark Brent down to close below $100 a barrel on Tuesday for the first time since September 8.
“The market is currently feeling more constructive about the global oil supply picture than it was a few weeks ago,” said Tim Waterer, chief analyst at KCM Trade.
“The meeting of US and Iranian delegations in New York has given traders a glimmer of hope ... Despite the continued tough rhetoric, including threats of ‘annihilation,’ the market is choosing to price in the possibility of talks.”
On Tuesday, Saudi Arabia restarted operations on its East-West Pipeline to the Red Sea, three sources briefed on the matter said, with signs of an increase in Middle Eastern oil flows.
Drone attacks, which Saudi Arabia has blamed on Iraqi militia, forced the kingdom to shut the pipeline on September 11, halting crude loadings at the kingdom's Yanbu port.
Since the US-Israeli war on Iran disrupted oil flows from Saudi Arabia and its Gulf neighbours through the Strait of Hormuz, Riyadh has been using the pipeline to reroute around 4 million barrels per day — around 4% of global supply — to Yanbu.
Saudi on Tuesday also offered more barrels to Asian refiners for lifting from locations outside of the Strait of Hormuz.
Iraq, too, is increasing oil exports, its oil minister, Basim Mohammed, said on Tuesday. The country is exporting more than 3 million bpd, he said, and expects to boost exports via Turkey to more than 600,000 bpd.
Provisional data from shiptracking firms Vortexa and Kpler pegged Iraqi crude exports in August at 2.3 million and 2.17 million bpd, respectively, up from July's level but below February's pre-war level of 3.7 million and 3.362 million bpd.
Adding to downward pressure on oil prices, industry data showed US crude inventories rose by 1.8 million barrels in the week to September 18. Analysts polled by Reuters had expected a decline.
Official weekly inventory figures from the US Energy Information Administration are due at 10:30 a.m. ET (1430 GMT).
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