Oil climbs 5% as Iran, US both demand compensation and Hormuz hopes fade

Oil prices climbed 5% on Monday, driven by Iran and the United States exchanging demands for compensation, as the prospect of reopening the Strait of Hormuz faded. Iran demanded that the U.S. lift sanctions and meet various other conditions, while President Donald Trump insisted Iran pay compensation for all its killed and injured.

Both Brent crude and U.S. West Texas Intermediate crude futures rose by 4.99% and 5.05% respectively, reaching $87.72 and $82.13 per barrel, the highest since July 29. Last week, both benchmarks fell over 7% due to hopes of a deal between Iran and Oman to reopen the strait, which carries a fifth of the world's oil and LNG. Iran claimed it was close to a final pact with Oman but reiterated the U.S. must meet other conditions, including compensation and ending sanctions and threats, before reopening the strategic waterway.

The U.S. and Iran are not currently in talks, as Tehran will not begin them while Washington is in breach of a June interim deal. Analysts believe near-term supply tightness is more likely, given the added Iranian demands and recent attacks in the Black Sea targeting Russian refineries and tankers. Additionally, Iranian-aligned Houthis attacked Saudi Aramco's 2222.SEJazan refinery, and ADNOC reported 15 of its vessels were attacked while passing through the Hormuz.

In response to regional instability, the UAE signed a defense pact with Turkey and Pakistan. Meanwhile, Ukraine continued striking Russia's energy infrastructure. U.S. crude oil reserves in the Strategic Petroleum Reserve fell to their lowest level since January 1983.