Oil prices retreated on Thursday, erasing earlier gains, following news reports which suggested that the U.S. and Iran have continued to hold peace talks despite a fresh exchange of air attacks.

As of 04:43 ET (08:43 GMT), Brent crude futures expiring in August, the global oil benchmark, had dipped by 1.4% to $91.76 per barrel, while West Texas Intermediate (WTI) crude futures had fallen 1.3% to $88.88 per barrel. 

Both contracts had advanced more than 2% in early Asian trading. Oil prices settled nearly 2% higher in the previous session.

The U.S. and Iran carried on negotiations over a potential peace deal overnight, CNN reported. A separate report from Reuters said Washington and Tehran are discussing a preliminary deal which would include a mechanism that would unfreeze Iranian funds. Efforts to forge such an agreement have intensified, the report added, citing Iranian sources.

Yet uncertainty has continued to surround the discussions, with U.S. President Donald Trump warning of more action against Iran if the country did not immediately accept a peace deal.

The U.S. struck multiple military targets in Iran through late-Wednesday and early-Thursday, U.S. Central Command said in a statement, describing the attacks as “self-defense” after the downing of an American helicopter near the Strait of Hormuz this week.

Iran retaliated by launching strikes against several U.S. military bases and allies in the Gulf, with explosions heard across Kuwait, Bahrain, and Jordan, according to unconfirmed media reports. Iran also said it had blocked all ship traffic through the Strait of Hormuz, a claim that CENTCOM denied. The strait is one of the world’s most important energy chokepoints, handling a substantial share of global seaborne crude exports. 

“While that isn’t something Iran can officially do, it can make vessel crossings a lot more difficult. This leaves shipowners reluctant to navigate the key chokepoint. It once again suggests a deal is still some way off and that energy flows from the Persian Gulf will remain heavily constrained,” analysts at ING said in a note.

The latest hostilities come after the U.S. and Iran intermittently traded strikes in recent weeks, amid a flaring in broader tensions in the Middle East. Iran has also traded strikes with Israel over the latter’s hostilities against Tehran-backed Hezbollah militants in Lebanon. The Israeli military on early Thursday warned of projectile launches from Lebanon.

U.S. crude stockpiles drop much more than expected

Elsewhere, data from the U.S. Energy Information Administration on Wednesday showed crude oil inventories fell by 7.2 million barrels in the week ended June 5, far exceeding analysts’ expectations for a draw of around 3 million barrels.

Gasoline stockpiles rose by 0.2 million barrels in the week, while distillate inventories — which include diesel and heating oil — fell by 0.2 million barrels.

Investors are also monitoring signs of inflationary pressure from higher energy costs. U.S. consumer inflation accelerated to 4.2% in May, reinforcing concerns that central banks could keep interest rates higher for longer.

Markets await U.S. producer price data and weekly jobless claims later in the day for further clues on the inflation outlook and the likely path of Federal Reserve policy.