SINGAPORE (Reuters): Brent oil prices fell more than 1% on Tuesday after Iran's foreign minister said the United States and Iran had reached an understanding on the main "guiding principles" of their nuclear talks, easing investor concerns about an escalation in tensions.
Brent crude futures were down 94 cents, or 1.4%, at $67.71 a barrel at 1413 GMT, following a 1.33% gain on Monday.
US West Texas Intermediate crude was at $62.79 a barrel, down 10 cents, or 0.2%, but the move included all of Monday's price action as the contract did not have a settlement that day due to the Presidents' Day holiday in the U.S.
Many Asian markets were closed on Tuesday for Lunar New Year holidays, including mainland China, Hong Kong, Taiwan, South Korea and Singapore.
OIL PRICES SEEN DRIVEN BY DIPLOMATIC SIGNALS
Oil prices are likely to stay volatile, with sharp two-way swings driven by diplomatic signals rather than pure demand-supply fundamentals, said Sugandha Sachdeva, founder of SS WealthStreet, a New Delhi-based research firm.
Washington and Tehran held indirect talks in Geneva on Tuesday focusing on their long-running nuclear dispute amid a U.S. military buildup in the Middle East. Iran's supreme leader warned on Tuesday that any U.S. attempt to depose his government would fail.
Iranian Foreign Minister Abbas Araqchi told state media Tuesday's progress did not guarantee a quick agreement, but it suggested that a path forward had begun.
Iran will close parts of the Strait of Hormuz for a few hours on Tuesday due to "security precautions" for shipping safety, the semi-official Fars news agency reported, as the Revolutionary Guards conduct military drills in the waterway.
Investors closely watched U.S.-Iran relations as any escalation or conflict could lead to Iran closing the Strait of Hormuz, a crucial oil export route, which would severely impact global oil exports.
Also in Geneva on Tuesday, Ukrainian and Russian officials were set to meet for a new round of U.S.-brokered peace talks, which the Kremlin said would likely focus on territory - the main sticking point.
Any peace resolution could see a lifting of sanctions, bringing Russian oil back to the mainstream market. Ukrainian attacks on Russian energy infrastructure continued. The Ukrainian military said on Tuesday that it had struck the Ilsky refinery, while a drone attack was also reported at the port of Taman.
"Market sentiment is closely tied to the tone and progress of these negotiations ... sustaining a geopolitical risk premium in prices," said Sachdeva. Elsewhere, oil production at Kazakhstan's giant Tengiz oil field is gradually increasing after an outage in January, Russian news agency Interfax reported.
(Reporting by Robert Harvey in London, Mohi Narayan in New Delhi and Anushree Mukherjee in Bengaluru; additional reporting by Stephanie Kelly; Editing by Thomas Derpinghaus, David Holmes, Chizu Nomiyama and Andrei Khalip). -- Reuters
