Investing.com -- Crude oil futures fell sharply on Tuesday reversing earlier gains on the session, to halt an extended rally that enabled the futures to reach its highest level for 2015.
The declines of more than 2% transpired amid escalating conflict in Yemen and ahead of the American Petroleum Institute's weekly supply report.
On the New York Mercantile Exchange, WTI crude for June delivery fell 1.33 or 2.31% to 56.55 a barrel. Earlier, Texas Light Sweet futures peaked above $58 a barrel before wavering on a day of choppy trading.
On the Intercontinental Exchange (ICE), brent crude for June delivery dropped 1.40 or 2.20% to 62.05 a barrel. The spread between the international and U.S. domestic benchmarks of crude stood at $5.50, slightly below Monday's level of $5.57.
In the Middle East, Iran president Hassan Rouhani called for an immediate cease fire of Saudi Arabian-led airstrikes on Yemen, as a new round of attacks hit the Yemeni capital of Sana on Tuesday. The Saudi advance against Shiite-led, Iranian-backed Houthi rebels in Yemen has led to the closure of seaports and airports in the impoverished country, blocking food shipments to Yemen citizens.
On Monday, U.S. aircraft carrier the USS Theodore Roosevelt advanced toward the Arabian Sea to join nearly 10 other U.S. naval ships in an effort to keep key shipping areas open. While the Associated Press reported the U.S. ships were deployed to prevent Iranian vessels from sending weapons to the Houthis, the Pentagon vehemently denied the report on Tuesday.
An Iranian naval convoy remains in nearby waters in the Gulf of Aden, according to the Pentagon.
"The Iranian ships are certainly one of the factors, but they are not the reason they are there," said Col. Steve Warren, Pentagon spokesman. "It's hard to predict the future so we need to have options."
While Yemen is not considered one of the major crude exporters in the region, it is strategically located on the Bab el-Mandeb strait one of the world's largest chokepoints of oil. Energy traders are sensitive to any geopolitical risks involving Saudi Arabia, one of the world's largest exporters of crude.
Elsewhere, investors await the Energy Information Administration's (EIA) weekly inventory report on Wednesday for a gauge on U.S. supply levels. Last Wednesday, WTI crude surged more than 6% after the EIA said that crude storage for the week that ended April 10 increased by 1.3 million barrels for the week. A week earlier, inventories skyrocketed by 10.95 million barrels – the highest weekly buildup in more than a dozen years.
The supply glut has exacerbated concerns that the U.S. could reach full storage capacity before the start of the summer. Analysts have forecasted a stockpile rise of 2.4 million barrels for the week ending April 17. A reading below the estimate could push crude prices higher on Wednesday.