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LONDON, May 27 (Reuters) - Oil prices settled 5 percent lower on Wednesday as investors awaited developments on the prospect of a framework agreement between the United States and Iran to end the crisis and reopen the Strait of Hormuz.

Brent crude futures fell $ 5.29, or 5.31 percent, to $ 94.29 a barrel, while U.S. West Texas Intermediate crude futures dropped $ 5.21 , or 5.55 percent, to $ 88.68 a barrel.

Both crude oil benchmarks touched their lowest levels in a month earlier in the session. The losses erased and even exceeded all of Brent's gains from Tuesday.

US Secretary of State Marco Rubio said some progress had been made in negotiations with Iran toward reaching an agreement. However, US President Donald Trump stated that the United States and Iran still had issues to resolve in the talks. Iran's Fars News Agency indicated that unresolved matters remained between the two sides.

Washington also denied Iranian television's report of a framework agreement under which the United States would withdraw its military forces from the vicinity of Iran and lift the naval blockade imposed on it, adding that Iran, in cooperation with the Sultanate of Oman, would manage the movement of traffic through the Strait of Hormuz.

“An Iranian military leader said the likelihood of a return to war was low, leading many traders to believe a peace deal was within reach,” said Dennis Kessler, vice president of Book Financial. “The severe global supply shortage that traders had factored into their calculations appeared to be easing.”

Ship tracking and shipping data indicated that a COSCO oil products tanker from China's COSCO transited the Strait of Hormuz on Wednesday, following the passage of two tankers the previous day. However, overall traffic through the strait remains limited.

Mark Schaefer, director of brokerage at Liquidity Energy, said, "The increase in shipping activity raises expectations that the strait will gradually open, restoring disrupted supplies to flow and reducing near-term supply risks and associated premiums."

Brent crude futures for July delivery had risen 3.6 percent in the previous session, after the United States launched new airstrikes in Iran, dashing hopes that had prevailed over the weekend for a peace agreement between Washington and Tehran.

Israel also intensified its bombardment of Lebanon yesterday, further straining peace efforts.

Following the ceasefire in April, in the three-month-long conflict, the United States and Iran indicated progress in talks aimed at reopening the Strait of Hormuz.

The International Energy Agency stated that Iran's de facto closure of the Strait resulted in a loss of oil supplies from the Middle East exceeding 14 million barrels per day.