The S&P/ASX200 lost 22.2 points, or 0.24 per cent, to 8,957, as the broader All Ordinaries fell nine points, or 0.1 per cent, to 9,172.1.
The local bourse shrugged off record highs on Wall Street overnight following reports Washington and Tehran were looking to extend a two-week ceasefire to provide more time to reach a peace deal.
"Hope springs eternal in the markets and the prospect of an extended ceasefire and eventual peace deal between the US, Israel and Iran has helped push Wall Street to an unlikely record high," Capital.com senior market analyst Kyle Rodda said.
Iran has also reportedly offered a proposal to allow ships to cross the Strait of Hormuz on the Omani side of the strait, while the US has threatened secondary sanctions on buyers of Iranian oil.
Despite the mixed signals of the Middle East energy crisis improving, a fire at one of Australia's two remaining fuel refineries has escalated local fuel supply fears.
Viva Energy was placed in a trading halt after a significant fire broke out at its Geelong Refinery in Corio on Wednesday night.
The facility, which suppliers more than 50 per cent of Victoria's fuel and 10 per cent nationwide, is still running on reduced production rates and the extent of damage caused by the fire isn't yet known, Viva said in a statement.
Competitor Ampol spiked more than 2.5 per cent in early trade, before easing to a 09.4 per cent advance of $33.27.
The Corio refinery is Australia's only producer of avgas (aviation gasoline), mostly used in private flights, agriculture and aviation training.
The broader energy sector shed 0.9 per cent, as oil prices, Woodside and Santos continued to ease from their strong rallies in the wake of the Persian Gulf conflict.
Coal producers also sold off, while uranium stocks maintained their recent strength, with Paladin and Silex spiking more than three per cent each.
Airlines also improved on the brighter outlook for global jet fuel prices and lessening disruption airspace in West Asia, with Qantas up one per cent to $9.18 and Virgin Australia jumped 2.4 per cent to $2.58.
Raw materials remained sluggish as gold miners and BHP lost ground, as gold itself slipped to $US4,820 ($A6,715) an ounce.
The heavyweight financial sector lost 0.5 per cent, with the big four banks again lagging the rest of the segment, as NAB dipped 1.8 per cent $43.73 and CommBank slipped 0.7 per cent to $181.87.
IT stocks are on track for a third session of gains, rallying 5.8 per cent by midday.
A slightly weaker-than-expected local jobs report didn't elicit a reaction from local equities, after March unemployment held steady at 4.3 per cent with 17,900 jobs added, short of a forecast 19,100 jobs.
The Australian dollar is buying 71.79 US cents, trading on par with its highest value since May 2022 and up from 71.38 US cents on Wednesday at 5pm.
The Aussie has held onto its recent gains thanks to improving risk sentiment and narrowing odds of a Reserve Bank interest rate hike in May.
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