Oil slips for a second day as markets bet on a U.S.-Iran off-ramp

Prices and market moves

Crude eased for a second straight session Tuesday on chatter that the U.S. and Iran may be edging toward a deal. WTI futures slipped 63 cents to 95.83 dollars and briefly traded below 95. Brent dropped 1.59 dollars to 103.18.

That followed a more than 7 percent selloff Monday after both Washington and Tehran indicated they were open to talks to settle the dispute. President Donald Trump said Tehran wants "to make a deal and that could happen."

Why traders are hopeful

The pullback reflects bets that a negotiated settlement could ease a standoff that has shaken global energy for eight months. Rumors of progress circulated, and Qatar's foreign ministry said Tuesday it is continuing to mediate, with a Qatari delegation meeting officials in Tehran to seek an agreement that prevents further escalation and ends the U.S.-Iran conflict.

Tehran pushed back on pressure tactics. According to the Islamic Republic News Agency, Iran's Foreign Ministry spokesman Emsaeil Baqaei said Tuesday that Iran rejects any talks pursued through coercive pressure.

The military and security backdrop

The region remains on edge. U.S. officials cited by the Wall Street Journal said Washington struck Iran's Qeshm Island on Monday and has conducted "limited strikes" in recent weeks. An unnamed official told the Journal the campaign was intentionally kept low profile to avoid telegraphing plans for a major escalation.

Meanwhile, vessels carrying cargo have faced repeated assaults in the Persian Gulf, Strait of Hormuz and Gulf of Oman. The United Kingdom Maritime Trade Operations Centre has recorded at least four such incidents since the start of the month.

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Politics, inflation and what it means for your portfolio

Before this week's slide, crude climbed more than 10 percent in October as the market priced in a post midterm-election risk of escalation, amid reports that Washington was drafting strike plans against Iran. Elevated oil has fed U.S. inflation and gasoline costs, a political headache for Trump ahead of the midterms.

The administration is also talking up a potential diplomatic path. Vice President JD Vance told 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 noted that Trump would prefer to resolve the Iranian war "diplomatically," adding that he favors avoiding the use of military force.

Monetary policy is leaning tighter. Two Federal Reserve district presidents said last week that rates would have to go up further to rein in inflation. Higher rates typically slow growth and raise consumer borrowing costs, but they work to cool price pressures.

The bottom line: headline risk is pulling oil in two directions - prospects for a deal vs. ongoing strikes and ship attacks - and that keeps energy, inflation and rate expectations squarely in play for your portfolio.

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