West Texas Intermediate, the benchmark for US crude, settled down $2.88, or 3.2%, at $86.53 per barrel on Tuesday. It plunged to as low as $85.73 during the session, a bottom since the Jan. 26 low of $85.01.
Brent, the London-traded global benchmark for crude, settled down $2.76, or 2.9%, at $92.34 per barrel. It earlier hit a session low of $91.72.
"After 18 months of negotiations, progress has been made in reviving the Iran nuclear deal," said Ed Moya, an analyst at online trading platform OANDA. "We’ve been here before and have seen talks fall apart. What is a little different this time is that it seems the Iranians are willing to discuss the terms. If the Iran nuclear deal is revived, that could send oil prices down to the low $80s."
Since May, crude prices have fallen from March highs of around $130 for the US around and $140 for Brent on concerns of a recession in the United States that could expand to Europe and elsewhere.
The oil market's slide has accelerated since the EU announced on Monday that it had sent Iran what it described as a "final" offer to revive the 2015 agreement. It also said it found "nothing alarming" in the response from Iran.
"For the moment, we are studying it and we are consulting with the other JCPOA participants and the US on the way forward," an EU spokesperson was quoted saying Tuesday about the potential for the deal.
The JCPOA refers to the Joint Comprehensive Plan of Action that binds Iran to the nuclear terms jointly set by China, France, Russia, the United Kingdom, the United States, Germany and the European Union.
A de-sanctioning of Iranian oil could bring relief to the current tightness in the global energy market, analysts said.
"A revival of the deal and lifting of oil sanctions could potentially see Iran increasing oil supply in the region of 1.3 million barrels per day over time," analysts at ING said in a note.
Analysts have said the global crude market was short of an estimated two million barrels or more of daily supply as a result of sanctions imposed by the West on Russian oil since the start of the Ukraine conflict.