Brent crude briefly dips below $90 for first time since August on Iran hopes

Trump said on Monday that the war with Iran could end "fairly soon" and that Tehran was "talking very politely" with Washington.

"We're seeing momentum toward the end of this conflict. I think it's going to be ending fairly soon," he said at the White House following a meeting with Qatar's prime minister, Sheikh Mohammed bin Abdulrahman Al Thani. "Iran militarily is effectively over," Trump told reporters.

Trump also said in a Truth Social post that Qatar, Saudi Arabia, the UAE, Bahrain and Kuwait would "prefer the status quo," namely maintaining a naval blockade against Iran and preventing the country from using ground routes to transport advanced weapons and other materials.

Crude oil prices have been highly volatile this year, proving sensitive to any perceived shift in direction in the U.S. and Israel's war with Iran.

Brent Crude started the year around $60 a barrel before soaring as high as $130 a barrel as military strikes escalated in March and April. Prices retreated in June and July before climbing back to those levels as the conflict increasingly appeared entrenched.

Crude oil flows through the key Strait of Hormuz waterway have largely recovered. But consumers have suffered from resulting volatility in energy markets, as wider global conflicts — including Houthi attacks on Saudi Arabia and the Russia-Ukraine war — exacerbate a shortage of refining capacity, sending prices of diesel, gasoline and jet fuel soaring.

Trump and Vice President JD Vance have both acknowledged that public disapproval of the Iran war and high energy prices played a role in the Republicans' punishing result in the U.S. midterms last week.

While officials on both sides have continued to trade hostile words, particularly as they debate control of the Strait of Hormuz, the U.S. had largely held back on military strikes since September, with Trump saying in early October they would not resume until after the midterms.

The U.S. carried out what Trump called "minor strikes" on Iran after reports that two missiles struck Qeshm Island, located near the Strait of Hormuz off the country's southern coast.

Uncertain negotiations

Analysts were divided on how the U.S. administration would approach the Iran conflict after the Democrats' resounding midterm victories, with some viewing escalation as a strong possibility despite the initial market reaction suggesting hopes of a deal.

"The market has continued to unwind some of the geopolitical risk premium built into prices in recent weeks as expectations grow that the conflict between the US and Iran could move towards de-escalation," ING strategists Ewa Manthey and Warren Patterson said in a note Tuesday.

"Signs that regional oil flows are recovering have added to the downward pressure... Reports that Iran may be softening its position on control of the Strait of Hormuz have also reduced concerns over a prolonged disruption to one of the world's most important oil transit routes."

"For now, the return of more Gulf barrels and the prospect of easing tensions are taking some of the geopolitical premium out of crude. However, with regional negotiations still uncertain and infrastructure risks persisting, we expect oil prices to remain sensitive to developments in the Middle East."

Fereidun Fesharaki, chairman of energy consultancy FGE, told CNBC's "Squawk Box Asia" on Tuesday that, despite market moves, he still did not see any prospects of a peace deal between the U.S. and Iran.

"The difference between the two sides is so wide, it cannot be bridged. Most importantly, the U.S. wants all the nuclear material, enriched material, to be transferred out of Iran, and there is no way that the Iranian regime would agree to this, and there is no way the Iranian regime would agree to let the Strait of Hormuz be open for a free flow of oil the way it was before the war," Fesharaki said.

"So, with these two in between, I just can't see a deal being made.

"Trump has to decide. Either he says, 'I declare victory and walk away,' or he goes to war. If he goes to war, he's got only a window of two weeks from today for himself and for [Israeli Prime Minister] Netanyahu, or there will be no war at all on a long-term basis," Fesharaki added.

Netanyahu's political party failed to win a majority in Israel's election last month, with rival Gadi Eisenkot, the former chief of the Israel Defense Forces, officially tasked with forming a government on Sunday.

— CNBC's Anniek Bao contributed to this story.