Meanwhile, banks predict a slightly more robust outlook for oil later this year: File Image/Pixabay

The notion that Iran may be close to securing a nuclear deal with the U.S. to avert a military conflict took some of the edge off geopolitical tensions on Tuesday, and oil correspondingly dipped for a third straight session.

After an NPR report said Tehran wants to secure a deal with Washington as quickly as possible, West Texas Intermediate fell 1 percent to below $66 per barrel, and Brent closed under $71.

However, the prospect of a conflict remains a distinct possibility, and
12 U.S. stealth F-22 fighter jets were deployed to Israel on Tuesday, adding to the massive build-up of naval forces; negotiations between the two countries will resume on Thursday in Geneva.

Giovanni Staunovo, a commodity analyst at UBS, pointed out that "Historically, the geopolitical risk premium on crude prices has tended to fade if there were no supply disruptions per barrel to prices."

But he added, "Near term, prices will likely be strongly influenced by the tensions in the Middle East."

Oil trading was also affected by Washington on Tuesday imposing a blanket 10 percent tariff on goods imports after the Supreme Court struck down the use of emergency laws to enact higher levies import tariffs.

For its part, Morgan Stanley said the geopolitical risk premium is likely to persist for a period but still expected prices to soften to $60 per barrel later this year (the bank predicts Brent will rise to $62.50 per barrel in the second quarter, compared with earlier expectations for $57.50 per barrel).

As for trading in the upcoming session, analysts took note of the American Petroleum Institute estimating that U.S. crude inventories rose by 11.4 million barrels in the week ending February 20, compared with expectations for a much smaller build of 1.8 million barrels.

But the Energy Information Administration said gasoline inventories fell by 1.5 million barrels over the same time period (in the week prior, gasoline inventories fell by 312,000 barrels).