Oil prices dropped sharply on Wednesday as investors focused on possible diplomatic progress between the United States and Iran, easing fears over disruptions in Middle Eastern energy supplies.

U.S. benchmark WTI crude fell more than 4% to $89.83 per barrel in early European trading, while Brent crude declined 3.66% to $95.94 per barrel. Brent remained below $100 for the third consecutive session.

The decline came as traders increased bets on a potential temporary agreement between Washington and Tehran that could extend the ceasefire and restart negotiations over the Strait of Hormuz and Iran’s nuclear program.

Market sentiment improved despite continuing military tensions near the Strait of Hormuz, a key global oil shipping route that remains partially disrupted.

Iran accused the United States on Tuesday of violating the ceasefire after new U.S. strikes targeted missile positions and boats in southern Iran. The U.S. military described the operation as a defensive action.

U.S. Secretary of State Marco Rubio said negotiations with Iran were still possible, while President Donald Trump maintained that Washington would only accept a favorable agreement.

Despite ongoing supply risks and tighter global energy markets, oil traders have increasingly shifted attention toward diplomatic developments and expectations of reduced tensions between the U.S. and Iran.