Oil prices rose 2% on Tuesday as hopes for a deal to end the U.S.-Israeli war on Iran faded, with stark differences between Tehran and Washington on a peace proposal bringing supply concerns again to the fore.
Brent crude futures were up $2, or 1.9%, at $106.21 per barrel, while U.S. West Texas Intermediate gained $2.31, or 2.4%, to $100.38 by 0726 GMT. Both benchmarks climbed nearly 2.8% on Monday.
U.S. President Donald Trump said on Monday the ceasefire with Iran was “on life support”, pointing to disagreements over several demands, such as the cessation of hostilities on all fronts, the removal of a U.S. naval blockade, the resumption of Iranian oil sales and compensation for war damage.
Tehran also emphasised its sovereignty over the Strait of Hormuz, through which about a fifth of global oil and liquefied natural gas flows.
“Optimism regarding an imminent (peace) deal seems to be fading again and if we don’t see a deal by the end of May, then upside risks for oil prices are definitely on the table,” said DBS Bank energy sector team lead Suvro Sarkar.
Disruptions linked to the near-closure of the strait have prompted producers to curtail exports, with a Reuters survey on Monday showing OPEC oil output in April fell to its lowest level in more than two decades.
“A genuine breakthrough toward a peace deal could trigger a sharp $8-$12 correction, while any escalation or renewed blockade threats would quickly push Brent back toward $115+,” said Tim Waterer, chief market analyst at KCM Trade.
Saudi Aramco CEO Amin Nasser warned on Monday that disruptions to oil exports through the strait could delay a return to market stability until 2027, with the loss of about 100 million barrels of oil per week.
Elsewhere on the supply front, U.S. crude stocks were forecast by analysts in a Reuters poll to be down by around 1.7 million barrels in the previous week.
The draw comes against “a backdrop of continued strong net waterborne export flows for crude and products, across the next several weeks,” said Walt Chancellor, an energy strategist at Macquarie Group.
Meanwhile, market participants were also keeping a close eye on President Trump’s planned meeting with Chinese President Xi Jinping on Thursday and Friday, after Washington imposed sanctions on three individuals and nine companies for facilitating Iranian oil shipments to China.
Tariffs imposed during the U.S.-China trade war have halted most Chinese imports of U.S. oil and LNG, which were worth $8.4 billion in 2024, the year before Trump began his second term.
(Reporting by Anmol Choubey in Bengaluru and Trixie Yap in Singapore; Editing by Sonali Paul, Thomas Derpinghaus and Muralikumar Anantharaman)