Oil prices tumbled about 4% on Tuesday (August 4), hitting their lowest levels in three weeks, after renewed optimism that diplomatic efforts could ease tensions in the Middle East and lead to the reopening of the Strait of Hormuz, a vital route for global energy supplies.

Brent crude futures fell $3.11, or 3.7%, to $80.66 a barrel, while U.S. West Texas Intermediate (WTI) crude dropped $3.58, or 4.5%, to $76.76 a barrel. Both benchmarks touched their lowest levels since July 13 after earlier climbing more than 2% on uncertainty surrounding U.S.-Iran negotiations.

Market sentiment shifted after Qatar and the United States signaled progress in diplomatic talks. Qatar's Foreign Ministry said mediators, including Qatar, Pakistan and Oman, continue to coordinate negotiations and exchange proposals aimed at resolving the conflict.

U.S. Treasury Secretary Scott Bessent also expressed confidence that an agreement with Iran to reopen the Strait of Hormuz could be reached as early as Tuesday or Wednesday, noting that shipping activity through the strategic waterway had already begun to improve.

The Strait of Hormuz remains the key issue in negotiations. Before the conflict erupted in late February, the narrow passage carried about 20% of the world's daily oil and liquefied natural gas supplies, making it one of the most important energy chokepoints in the world.

Earlier in the day, oil prices had briefly risen following reports of incidents in the strait and comments from a senior Iranian official, who told Reuters that Tehran is seeking greater control over inbound shipping and increased oversight of outbound vessels under a proposal being discussed with Oman as part of efforts to reopen the waterway.

Posted by: Alma Angeles/With a report from Reuters