Oil prices fell around 4% on Wednesday on the prospect of a possible ceasefire easing supply disruptions from the key Middle East producing region after reports the US sent Iran a 15-point plan to end the war between them.
Brent crude futures fell $4.89, or 4.7%, to $99.60 a barrel by 0335 GMT, after declining to as low as $97.57. US West Texas Intermediate (WTI) crude futures were down $3.54, or 3.8%, at $88.81 a barrel, after falling to as low as $86.72.
Both benchmarks rose nearly 5% on Tuesday, before paring gains in volatile post-settlement trading.
"Expectations of a ceasefire have risen slightly and profit-taking is leading the market," said Hiroyuki Kikukawa, chief strategist of Nissan Securities Investment, a unit of Nissan Securities. "But the outlook remains uncertain as to whether negotiations will succeed, limiting selling."
US President Donald Trump said on Tuesday the US was making progress in negotiating an end to the war with Iran, while a source confirmed that Washington had sent Iran a 15-point settlement proposal.
Israel's Channel 2 said the US was seeking a month-long ceasefire to discuss the plan, which includes the dismantling of Iran's nuclear program, ceasing support for proxy groups, and the reopening of the Strait of Hormuz.
Some analysts are sceptical on the progress of such talks, expecting markets to remain volatile.
Phillip Nova's senior market analyst Priyanka Sachdeva said Middle East developments would remain the "dominant price driver" keeping oil prices moving in a wide range in the near term.
The war has all but halted shipments of oil and liquefied natural gas through the Strait, which typically carries about one-fifth of the world's gas and crude supply, causing what the International Energy Agency has called the biggest-ever oil supply disruption.
"The market outlook remains tight notwithstanding the prospects of a war off-ramp," said Saul Kavonic, head of energy research at MST Marquee.
"Even if a ceasefire is implemented this week and flows through Strait of Hormuz resume, it's not clear all shut-in production will resume until there is more clarity on the durability of a ceasefire."
On Tuesday, Pakistan's prime minister said he was willing to host talks between the US and Iran.
Iran has told the United Nations Security Council and the International Maritime Organization that "non-hostile vessels" may transit the Strait of Hormuz if they coordinate with Iranian authorities, according to a note seen by Reuters on Tuesday.
Still, US, Israeli and Iranian strikes continued, and sources said Washington was preparing to send more troops to the region.
To offset the Strait of Hormuz disruptions, oil exports from Saudi Arabia's Red Sea Yanbu port rose to nearly 4 million barrels per day last week, a sharp increase from before the war broke out, shipping data shows.
In the US, crude, gasoline and distillate stocks rose last week, according to market sources who cited American Petroleum Institute figures on Tuesday.
Crude stocks rose by 2.35 million barrels in the week ended March 20, gasoline inventories rose by 528,000 barrels and distillate inventories rose by 1.39 million barrels from a week earlier, the sources said.
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