Oil prices drop as traders look for US-Iran talks progress

Oil prices fell by more than 3% on Wednesday as traders weighed up progress in U.S.-Iran peace talks and renewed hostilities.

Brent crude futures $3.11, or 3.12%, to $96.47 a barrel as of 0913 GMT, while U.S. West Texas Intermediate (WTI) crude lost $3.64, or 3.88%, to $90.25 a barrel.

The losses almost erased Brent's gains on Tuesday.

"There has been palpable progress towards ending the crisis, and an increasing number of ships are transiting the critical chokepoint. This is why the downward pressure has resumed," PVM analyst Tamas Varga said of Wednesday's losses.

July Brent futures rose 3.6% in the previous session after the U.S. carried out new strikes in Iran, hurting hopes over the weekend that Washington and Tehran would reach a peace deal.

"Hopes for a framework agreement between the US and Iran to end the conflict have been somewhat dampened by the recent US strikes on Iranian missile sites and vessels that were allegedly attempting to lay mines in the Strait of Hormuz," Commerzbank analysts said on Wednesday.

"Nevertheless, confidence remains high among market participants," they added.

Iran said on Tuesday the U.S. had violated a ceasefire by striking targets near the contested Strait of Hormuz, while Washington said its strikes were defensive in nature. Israel ramped up bombing in Lebanon on Tuesday, further straining peace efforts.

After an April ceasefire in the three-month-long conflict, both sides indicated they had made progress on talks toward reopening the Strait, which is key to global oil and gas flows.

Nevertheless, news that some LNG tankers have passed through the strait in recent days lifted expectations that the waterway might reopen soon, which would add to global supply.