Oil prices moved higher on Tuesday as investors grew less confident that a near-term agreement could bring an end to the conflict involving the United States, Israel and Iran, pushing supply risks back into focus.
Brent crude futures climbed $2, or 1.9%, to $106.21 per barrel, while U.S. West Texas Intermediate crude rose $2.31, or 2.4%, to $100.38 by 0726 GMT. Both contracts had already gained nearly 2.8% in Monday’s trading session.
Market sentiment shifted after U.S. President Donald Trump suggested that negotiations with Tehran remained deadlocked. Trump said Monday that the ceasefire with Iran was “on life support,” citing unresolved disagreements over several core issues.
Among the sticking points are demands related to ending military operations across all fronts, removing the U.S. naval blockade, restarting Iranian crude exports and compensation for damage caused during the conflict.
Iran also reaffirmed its control over the Strait of Hormuz, the strategically important shipping corridor that handles around 20% 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.
Supply disruptions linked to the near shutdown of the Strait of Hormuz have already forced some producers to reduce exports. A Reuters survey released Monday showed OPEC oil production in April dropped 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 chief executive Amin Nasser warned Monday that interruptions to oil shipments through the Strait of Hormuz could delay a return to balanced market conditions until 2027, potentially disrupting roughly 100 million barrels of oil per week.
Lower U.S. Crude Inventories Add Pressure to Markets
Concerns around tightening supply were also supported by expectations of declining U.S. crude stockpiles.
Analysts surveyed by Reuters expect U.S. oil inventories to have fallen by roughly 1.7 million barrels last week.
The expected decline comes amid “a backdrop of continued strong net waterborne export flows for crude and products, across the next several weeks,” said Walt Chancellor, energy strategist at Macquarie Group.
Investors Watch Trump-Xi Talks and China Sanctions
Markets are also monitoring the upcoming meeting between President Trump and Chinese President Xi Jinping, scheduled for Thursday and Friday.
The talks follow recent U.S. sanctions targeting three individuals and nine companies accused of helping facilitate Iranian oil shipments to China.
At the same time, tariffs introduced during the U.S.-China trade dispute have effectively halted most Chinese imports of U.S. crude oil and liquefied natural gas. Those imports were valued at approximately $8.4 billion in 2024, the year before Trump returned to office for his second term.
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