Oil prices have dropped below 90 dollars a barrel for the first time since August as US President Donald Trump continues to play down the prospect of re-escalation in Iran.
Mr Trump said the war was likely to end soon at a White House press conference on Monday night.
The price of Brent crude oil fell by about 3% on Tuesday morning to lows of about 89.20 dollars a barrel, the lowest price since late August.
This followed a sharp fall on Monday and extending last week’s sell-off of the commodity in global markets.
Investors have reacted with relief to growing signs of diplomatic efforts in the US-Iran war.
Mr Trump has been downplaying the prospect of re-escalation, saying it was not “necessary” at this stage to take military action against Iran but that the US was “locked and loaded and ready to go” if things changed.
“We’re seeing momentum toward the end of this conflict, I think it’s going to be ending fairly soon,” he said.
The president has previously claimed that negotiations were proceeding and that a peace deal could be imminent.
He recognised last week that the Iran war played a part in his Republican Party’s defeat in the midterm elections but said it was something he had to do.
Ewa Manthey and Warren Patterson, commodities strategies for ING, said signs that oil flows through the Middle East were recovering had added to downward pressure on prices.
“Crude exports from the Persian Gulf are estimated to have returned to around 80-85% of pre-war levels, including pipeline volumes, while refined product shipments have recovered to roughly 35-40%,” they said.
“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.”
But they stressed that oil prices “remain sensitive to developments in the Middle East” despite the prospect of tensions easing.
Inflation in the UK has been getting higher because of elevated oil and gas prices pushing up the cost of household energy and fuel, which led the Bank of England to raise interest rates last week.
The central bank’s Governor Andrew Bailey said that even if oil and gas prices were to drop, there was “already a significant amount of inflation pressure in the pipeline”.
However, he said the best thing that could happen in terms of relief for the UK economy was for the conflict in the Middle East to be resolved.
