-- Oil prices rose from recent losses in Asian trade on Tuesday, buoyed by the prospect of potentially tighter supplies in the coming months, even as easing tensions over an Iran-Israel war saw traders price out a risk premium in crude. 

Crude prices slid to over three-week lows on Monday amid growing conviction that Iran and Israel will not enter an all-out war. Fears of such a scenario had been a key driver of oil price gains in recent sessions. 

But traders still saw oil markets growing tighter in the coming months, especially following recent production curbs from Russia, and as U.S. fuel demand picked up with the spring season. 

The U.S. was also seen tightening its oil export sanctions against Iran. 

expiring in June rose 0.4% to $87.39 a barrel, while  rose 0.5% to $82.32 a barrel by 20:53 ET (00:53 GMT). Both contracts hit an over three-week low on Monday, but ended the day off those lows. 

Traders seen pricing out risk premium from oil prices

Iran gave little indication that it planned to immediately retaliate against Israel over a recent strike, while also downplaying the full impact of the attack.

This fed into hopes that the two countries will wind down hostilities, presenting a more stable outlook for geopolitical conditions in the Middle East. Such a scenario saw traders begin steadily pricing out a risk premium from oil prices. 

Fears of an Iran-Israel war had driven oil prices to near six-month highs earlier in April, as markets bet on supply disruptions stemming from a broader war in the Middle East. 

But while chances of such an event now appeared less, there still remained a possibility of more aggression, especially as Israel kept up its strikes against Gaza. 

Iraqi-based groups also claimed they will ramp up missile strikes against the U.S. and its allies in the region. 

Oil demand seen picking up as US driving season approaches 

Despite recent losses, oil prices were still relatively buoyant on expectations of tighter supplies in the coming months.

Russia had last month cut down fuel exports amid Ukrainian strikes on its major fuel refineries, while the Organization of Petroleum Exporting Countries and allies (OPEC+) was also seen maintaining its pace of production cuts until at least end-June. 

Bets on tighter supplies were furthered by the U.S. preparing tighter oil export restrictions on Iran. But it remained unclear just how strict the U.S. would be, given that high gasoline prices in the U.S. have become a contentious topic for the Biden administration.

The approaching U.S. driving season is also expected to spur increased demand in the world’s biggest fuel consumer. U.S. refinery activity was seen picking up in recent weeks, while gasoline inventories in the country steadily shrank.