Oil prices continued to edge lower in early Asian trading on Tuesday as a fourth night passed without attacks from either Iran or the United States, reinforcing a brief pause in the geopolitical risk premium that has driven recent moves.

At the time of writing, WTI crude was trading at $80.98 per barrel, down 1.97% on the session, while Brent crude had slipped to $86.80 per barrel, a decline of 1.77%.

On Monday, President Trump sought to lift hopes for a diplomatic resolution between Washington and Tehran by saying the U.S. was engaged in "good talks" with Iran. Iranian officials echoed that view, although both sides have made clear that hostilities could resume at any point if diplomacy fails.

Even with the recent decline, oil prices remain elevated as shipping disruptions continue to weigh on Middle East energy flows, keeping traders focused on routes where supply interruptions can quickly affect broader market sentiment. Markets are paying particular attention to Red Sea traffic, where the Houthis are attempting to replicate Iran's control over the Strait of Hormuz. Traffic through the Bab el-Mandeb Strait did fall on Sunday after a Houthi attack on Saudi oil installations along the Red Sea coast, but the Yemeni group does not pose as large a threat as Iran does in Hormuz.

Alongside the easing geopolitical risk premium, demand destruction is also helping to pull prices lower, with $100 oil already weighing on consumption. Last week, the EIA reported inventory builds across the board, which may have been one of the first signs that demand destruction is taking hold. Markets will be watching the American Petroleum Institute inventory estimates due later on Tuesday for confirmation.

For now, geopolitics remain the dominant force in oil markets, even as supply-demand signals add another layer to the outlook. Any escalation in the Middle East could send prices sharply higher, while signs of a diplomatic breakthrough would likely push them lower.

By Charles Kennedy for Oilprice.com