NEW YORK: Oil prices settled 1% lower on Tuesday as investors kept a close watch on crude flows through the Strait of Hormuz following signs of progress in US-Iran peace talks.

Brent futures closed down 82 cents, or 1.1%, at US$77.08 per barrel, while US West Texas Intermediate futures finished 65 cents, or 0.9%, lower at US$73.21 a barrel. Both benchmarks hit near-four-month lows during Tuesday's session.

Prices have been trending down after falling 3% on Monday after the United States granted Iran a 60-day sanctions waiver following initial peace talks, and as officials reported a lull in hostilities in Lebanon under a broader agreement.

On Tuesday, Oman and Iran agreed to press on with discussions about the future administration of navigation in the Strait of Hormuz.

US Secretary of State Marco Rubio said on Tuesday that Iran would not be able to charge tolls in the key waterway as part of any final agreement with the United States, saying such an arrangement would violate international law.

The world has lost millions of barrels of oil and gas supply since the Iran war closed the strait, a chokepoint for about a fifth of the world's oil and LNG supplies, for more than three months. At its peak, more than 14 million barrels per day (bpd) of oil output was shut-in, or about 14% of world demand, according to the International Energy Agency.

Investors now are cautiously watching how quickly Middle Eastern producers can resume oil production and exports following damage from the war, and whether more ships will enter the region.

An Iranian military source told Fars news agency that a limited number of vessels are being allowed to pass through the strait each day under coordination with Iran's Revolutionary Guards Navy.

Separately, ship-tracking data showed that three stranded supertankers passed through the strait on Tuesday, while seven empty Qatar-linked liquefied natural gas tankers have entered in recent weeks.

The UN shipping agency said an evacuation plan to enable hundreds of ships with 11,000 seafarers stranded in the Gulf to sail through the strait is underway after the US-Iran ceasefire deal.

US President Donald Trump said 19 million barrels of oil flowed out of the strait on Monday, and pointed to falling oil prices in a social media post on Tuesday.

Still, in the short term, the easing of sanctions will not weigh on prices much, said Ole Hvalbye, market analyst at SEB Research, as the US-Iranian memorandum of understanding was still new and fragile.

"Ship owners and operators will require assurances that the threats posed by mines have been fully eliminated. Damaged ports, debris in the water and congestion present additional obstacles to an unconditional ramp-up in traffic," PVM Oil Associates analyst Tamas Varga said.

Iraq raised output from its southern oilfields to about 2.1 million bpd as more tankers queued at Gulf export terminals, two Iraqi oil officials told Reuters.

Elsewhere, supply increases were uneven: Saudi Arabia, Opec's top exporter, saw crude exports fall for a second straight month in April to a record low, according to data from the Joint Organizations Data Initiative.

US crude, gasoline and diesel stockpiles likely declined last week, a preliminary Reuters poll showed. This comes after the Department of Energy said last week that crude oil inventories in the US Strategic Petroleum Reserve fell to their lowest level since June 1983.

"While the aggressive unwinding of speculative long positions has pulled prices down from previous highs, historically low US Strategic Petroleum Reserve levels are expected to keep a firm structural floor under the market in the weeks ahead," energy consultancy Gelber & Associates wrote in a note. — Reuters