Oil declined as U.S. President Donald Trump considered easing sanctions on Iran that severely restricted the OPEC member's ability to export crude.
Futures fell as much as 2.7% in New York on Wednesday. Trump is preparing to meet with Iranian President Hassan Rouhani later this month, according to people familiar with the matter. Such talks would be unprecedented for an administration that made isolating the Islamic Republic a cornerstone policy.
"The crude market will be very sensitive to any changes to the U.S.-Iran relationship," said Brian Kessens, a portfolio manager at Kansas-based Tortoise. "If the relationship improves, there will be more Iranian crude for the market."
Separately, diesel stockpiles in the world's biggest economy expanded by 2.7 million barrels last week, surprising analysts who were girding for a withdrawal. Crude oil has been locked within a narrow $5.92 range for the past month as slowing demand growth vied with geopolitical supply threats. Since late April, the futures have fallen 15%.
West Texas Intermediate crude for October delivery fell $1.25 to $56.15 a barrel at 11:51 a.m. on the New York Mercantile Exchange.
Brent for November settlement decreased $1.34 to $61.04 on the ICE Futures Europe Exchange. The global benchmark traded at a $5.20 premium to WTI for the same month.