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Oil prices fell to a three-week low on Tuesday as senior US officials raised hopes of a deal with Iran to reopen the key Strait of Hormuz waterway.
US Secretary of State Marco Rubio and Treasury Secretary Scott Bessent both announced talks had progressed to allow shipments to potentially resume as soon as this week.
The cost of a barrel of brent crude, the global benchmark for oil prices, fell by almost 5% to under $80 on the news of supply disruptions potentially being eased.
But the failure of previous negotiations in recent months to de-escalate the conflict between the US and Iran has led to a volatile oil market, with drivers ultimately being hit by higher fuel prices at the pumps.
On Tuesday, along with the drop in Brent crude, US West Texas Intermediate prices were down more than 5%, to $76 a barrel. Both contracts dropped to their lowest levels since 13 July.
US Secretary of State Marco Rubio said there had been progress made in discussions on getting more ships through the Strait with Iran and Oman.
"There's been progress made in those talks, but not finality yet. We're hoping that will happen very shortly," he told reporters at the State Department.
Bessent said a deal to reopen the Strait of Hormuz could be agreed as soon as Tuesday or Wednesday.
There was a "chance we may have a deal today or tomorrow to open the strait and move towards a more normalized position in this conflict," he told CNBC.
"It would be freedom of movement," he added, when asked whether Iran would be allowed to charge for ships passing through.
While senior figures in the US government have announced talks have been progressing, no details of what a potential deal may look like have been released.
The Strait of Hormuz has been a central point in negotiations between the US and Iran. Before the conflict began in late February, the waterway handled about one-fifth of global daily oil and liquefied natural gas supplies.
The disruption has sent prices at the pumps up across the world. In the UK petrol prices are now at levels seen at the start of the conflict, with the average cost of a litre of petrol hitting £1.60, according to the RAC motoring group.
In the US, gasoline prices are on average above $4 a gallon, according to the AAA. Diesel is almost $5.40 a gallon.
Qatar, which is one of the key mediators between Washington and Tehran, said it was continuing efforts with other mediators to try to achieve a diplomatic resolution to the war, but admitted no direct talks were currently planned.
On Monday, President Donald Trump warned Iran faced its "last chance" to agree a deal to allow commercial shipping to resume in the Strait.
He said he had called off "massive" strikes on the country for talks to resume.
But Iran has said it was not negotiating with the US - and had no plans to do so - and is instead talking to Oman.
US stock markets were trading higher on Tuesday following news of the negotiations lowering oil prices and also in response to corporate results related to Artificial Intelligence.
Investors have experienced jitters on Wall Street as results from Big Tech firms indicate spending on the technology is set to continue to soar.
