Oil extended losses below $60/bbl on the prospect of easing tensions between the U.S. and OPEC member Iran, and as Gulf of Mexico producers began resuming operations after a storm.

Futures fell as much as 3.2% in New York on Tuesday, after Secretary of State Mike Pompeo said Iran, which has been hit by American sanctions over its weapons program, had signaled an openness to talks. That followed similar comments from the Islamic Republic’s foreign minister, Mohammad Javad Zarif, the first signs of a possible diplomatic solution since the U.S. sought to curb the Middle East producer’s revenues by squeezing its oil exports.

Oil explorers and refiners along the Gulf coast, meanwhile, are returning employees after the former Hurricane Barry shuttered almost three-quarters of output over the weekend. That’s expected to be a factor in the latest tally of American stockpiles, which probably declined by 3 MMbbl last week, according to a Bloomberg survey.

Oil has rallied about 10% since mid-June on shrinking U.S. inventories, rising tensions over Iran and extended cuts by the Organization of Petroleum Exporting Countries and its partners. Geopolitical risk heightened Tuesday as the U.S. said it was probing the fate of a small Emirati tanker that entered the Persian Gulf state’s waters. Still, expanding supply, including from American shale fields, and weaker demand are concerns.

“Bullish catalysts are in short supply,” analysts at London-based broker PVM Oil Associates Ltd. said in a note to clients. “The Gulf Coast of Mexico hurricane premium is fading as offshore operations in the region resume. At the same time, the U.S. shale engine continues to give oil bulls a sleepless night.”

Oil climbed earlier in the day along with U.S. equities after American retail sales, factory output and housing reports all beat forecasts. However, the rally fizzled amid speculation the data could deter the Federal Reserve from cutting interest rates.

August West Texas Intermediate oil was down $1.91 at $57.67/bbl on the New York Mercantile Exchange as of 1:25 p.m., after losing 1.1% on Monday. Brent futures for September settlement slipped $1.69 to $64.79 on the ICE Futures Europe Exchange in London. The global benchmark crude was at a premium of $6.80 to WTI for the same month.

Royal Dutch Shell Plc and ConocoPhillips are among companies seeking to restore output at offshore platforms in the Gulf of Mexico now that weather conditions have improved. The region accounts for 16% of total U.S. crude oil production, according to the Energy Department.

“In the short-term, given that we’re in peak driving season, we’re going to continue to see inventories draw,” Sanford C. Bernstein analyst Oswald Clint said in a Bloomberg TV interview. “OPEC needs to keep a lid on production and potentially cut more if it’s going to continue to manage prices around the $70/bbl mark.”

Source: www.worldoil.com