Brent and US crude futures fell on Tuesday as fears of supply disruptions from the conflict between Israel and Iran eased after Iranian-backed Hezbollah signaled support for a ceasefire proposal put forth by Lebanon's government.

Brent crude futures were down $3.70, or 4.57%, to $77.23 a barrel at 11:21 a.m. CDT (1621 GMT). US West Texas Intermediate futures were down $3.57, or 4.63%, at $73.57 a barrel.

The drop, which began slowly on fears of reduced Chinese demand, snowballed after Hezbollah signaled support for a ceasefire and Israel expanded its ground war in Lebanon instead of attacking Iran's oil infrastructure.

“That Hezbollah is open to a ceasefire, that is the kind of headline that people jump on,” said Phil Flynn, senior analyst at Price Futures Group. “There should be a lot of volatility up and down on this.”

On Monday, Brent rose above $80 per barrel for the first time since August after more than a 3% day-on-day gain. That followed the largest weekly gain in over a year, roughly 8%, in the week to Friday on rising concerns of a spreading war in the Middle East.

Hezbollah left the door open on Tuesday to a negotiated ceasefire with Israel after Israeli forces raised the stakes in the conflict with its Iran-backed enemy by making new incursions in the south of Lebanon.

The oil price rally began after Iran launched a missile barrage at Israel on October 1. Israel has sworn to retaliate and said it was weighing its options, with Iran's oil facilities considered a possible target.

Some analysts said an attack on Iranian oil infrastructure was unlikely and warned oil prices could face considerable downward pressure if Israel focuses on any other target.

“... for now the threats of Israeli assaults on Iranian oil infrastructure have not materialized,” said PVM analyst Tamas Varga.

In the United States, Hurricane Milton intensified into a Category 5 storm on its way to Florida after forcing at least one oil and gas platform in the Gulf of Mexico to shut on Monday.

Traders also will be looking out for the latest US crude oil inventory data, with analysts expecting stocks to rise by 1.9 million barrels in the week ended October 4, according to a preliminary Reuters poll.

The American Petroleum Institute is due to post its tally of US stockpiles at 2030 GMT on Tuesday, followed by official data from the Energy Information Administration on Wednesday.

By staff and Reuters