Crude oil prices fall for second day as market hopes for diplomatic resolution to Iran war

Crude oil prices fell Tuesday for a second consecutive session, as the market hopes the U.S. and Iran will reach a diplomatic settlement to the conflict that has disrupted global energy supplies for eight months.

Brent crude, the international benchmark, was down $1.23 at $103.54 a barrel. West Texas Intermediate was 42 cents lower to $96.04. The move lower came after rumors circulated the U.S. and Iran were making progress toward a deal.

Oil sold off more than 7% on Monday after Washington and Tehran signaled they were both open to discussions to reach a settlement. President Donald Trump told reporters Tehran wants "to make a deal and that could happen."

Qatar is continuing to mediate talks between the U.S. and Iran, the Gulf state's foreign ministry said Tuesday. A delegation from Qatar held talks in Tehran in an effort to reach an agreement that prevents further escalation in the region and ends the U.S.-Iran conflict, the foreign ministry said.

The market had been pricing in the risk of escalation after the U.S. midterm elections, with oil gaining more than 10% in October. The situation in the Middle East remains volatile and there's still substantial risk that renewed fighting could break out.

Washington attacked Iran's Qeshm Island on Monday, U.S. officials told The Wall Street Journal, adding that the U.S. has been carrying out "limited strikes" against the country in recent weeks.

The military campaign against Iran has been kept deliberately low-profile to avoid signaling plans for a major escalation in fighting, the report said, quoting an unnamed official.

And commercial ships continue to come under attack in the Persian Gulf, Strait of Hormuz and Gulf of Oman. At least four ship attacks have been reported since the start of the month, according to the United Kingdom Maritime Trade Operations Centre.

But despite these strikes, the Trump administration has also been touting a possible diplomatic solution to the conflict, with Vice President JD Vance telling CNN, "The president and I both feel really good about the prospect of potentially coming to a negotiated settlement."

On Sunday, U.S. Secretary of State Marco Rubio said President Donald Trump would like to resolve the Iranian war "diplomatically," and prefers not to use military force.

High oil prices have contributed substantially to inflation and high gasoline prices in the U.S., which have become a cause of concern for Trump ahead of the midterm elections.

Last week, two Federal Reserve presidents said interest rates will need to move higher to rein in inflation. Higher rates generally crimp growth and raise costs for consumers, but help to bring down inflation.

— CNBC's Priyanka Salve contributed to this report.