Oil drops more than 2% as a pause in U.S.-Iran hostilities raises de-escalation hopes

Oil prices extended their losses Tuesday after a pause in fighting between the U.S. and Iran held, raising hopes for a de-escalation in the Middle East conflict that has upended energy supplies. 

International benchmark Brent crude futures for September delivery fell more than 2% to $86.52 a barrel. U.S. West Texas Intermediate crude futures for September delivery dropped 2.3% to $80.71 a barrel. 

While Tehran has rejected reports that it has agreed to a 10-day ceasefire with the U.S., there has been a temporary pause in hostilities.

That follows reports of diminished U.S. munitions. President Donald Trump, who on Friday told Axios that he was considering a "massive attack" on Iran, later set those plans aside amid arms stockpile concerns, The New York Times reported. 

Speaking to reporters aboard Air Force One on Monday en route to Michigan, Trump dismissed suggestions that the U.S. was running short on weapons, saying the military had "plenty" of ordnance.

The Commonwealth Bank of Australia said on Tuesday that recent decline in oil prices reflects easing concerns over an immediate escalation between the U.S. and Iran, but cautioned that risks to global energy supplies remain elevated.

While "a pause in US Iran hostilities appears to have weakened expectations that the conflict will escalate to include significant attacks on civilian and energy infrastructure," the bank said in a note, warning that disagreements over the vital Strait of Hormuz shipping lane "could see hostilities reignite."