Brent crude futures retreated on Tuesday but held near $114 a barrel following fresh hostilities in the Middle East, while investors monitored developments in the U.S.-Israeli conflict with Iran.
The U.S. and Iran launched new attacks in the Gulf on Monday as they wrestled for control over the Strait of Hormuz with duelling maritime blockades, shaking a fragile truce.
Brent crude futures LCOc1 eased 93 cents, or 0.8%, to $113.51 per barrel at 0719 GMT after settling up 5.8% on Monday. U.S. West Texas Intermediate (WTI) crude CLc1 fell $2.16, or 2%, to $104.26, after gaining 4.4% in the previous session.
"Prices continue to trade in a highly volatile range, driven largely by ongoing tensions in the Strait of Hormuz," said Phillip Nova's senior market analyst Priyanka Sachdeva.
"While prices have eased slightly in recent sessions, this is not due to any real improvement in fundamentals, but rather a temporary relief after the U.S. launched 'Project Freedom'," she added.
The U.S. on Monday launched a new operation aimed at reopening the strait to shipping. Maersk later said the Alliance Fairfax, a U.S.-flagged vehicle carrier, exited the Gulf via the strait accompanied by the U.S. military.
"It shows that limited safe passage is possible under current conditions and helps chip away at some of the worst-case supply disruption fears," said Tim Waterer, chief market analyst at KCM Trade in an email.
"However, it's still very much a one-off event rather than a full reopening," he added.
Still, Iran launched attacks in the Gulf on Monday to counter U.S. moves for control over the Strait of Hormuz, which connects the Gulf to wider markets and typically carries oil and gas supply equal to about 20% of global demand every day.
Several commercial vessels were reportedly struck in the area, while a key oil port in the United Arab Emirates was set ablaze after an Iranian strike. Trump's attempt to use the U.S. Navy to free up shipping is the war's biggest escalation since a ceasefire was declared four weeks ago.
"Markets may find some relief today following President Trump's overnight comments suggesting the conflict could continue for another two to three weeks," said ING analysts in a client note.
However, there is considerable scepticism in the market on this view, given the recent escalation and the repeated extensions of projected timelines for ending hostilities since the conflict began, they added.
(Reuters - Reporting by Anushree Mukherjee in Bengaluru and Trixie Yap in Singapore; Editing by Christian Schmollinger and Jacqueline Wong)