Crude oil prices fell as the announcement of a conditional ceasefire between Israel and Lebanon raised market hopes that the United States and Iran are moving closer to a peace agreement, even as persistent conflict casts a shadow over the truce.

WTI futures dropped more than 3%, ending a three-day rally and settling above $93 per barrel. The Israel-Lebanon ceasefire announced on Wednesday could meet a key negotiation condition for Tehran, potentially paving the way for a deal between the U.S. and Iran.

Washington and Tehran have outlined a framework to extend a mutual ceasefire for two months and reopen the Strait of Hormuz. However, negotiations have stalled, and sporadic fighting has resumed.

Iran has stated that recent talks with the U.S. have made no progress, and the Hezbollah militia, which Iran supports, has also refused to accept the U.S.-brokered Lebanon ceasefire. Meanwhile, the Strait of Hormuz remains effectively closed. Despite these obstacles, they have not prevented the decline in oil prices.

"I think the market is still largely clinging to the idea that we are very close to a deal," said Gregory Brew, a geopolitical analyst at Eurasia Group.

The futures sell-off accelerated on Thursday morning after former U.S. President Donald Trump posted on social media that negotiations were in their final stages. Trump stated last week that he would soon make a "final decision" regarding the ceasefire.

"Open interest and volume have fallen to multi-year lows, showing that traders are almost entirely on the sidelines," said Joe DeLaura, Global Energy Strategist at Rabobank.

WTI July futures fell 3.1%, settling at $93.04 per barrel.

Brent August futures declined 2.8%, settling at $95.03 per barrel.