World’s lifeline stays hot as Iran-US peace hopes cool

Oil prices remained elevated on Tuesday, hovering near multi-week peaks, as fading optimism over a potential U.S.-Iran peace deal dampened market sentiment. The decline in hopes for a resolution followed President Donald Trump's insistence on compensation for damages incurred during conflicts, escalating tensions, and demonstrations. This demand could potentially hinder efforts to reopen the strategic Strait of Hormuz.

Brent crude futures remained flat at $87.81 a barrel, while U.S. West Texas Intermediate crude futures maintained a steady $82.20 a barrel. Both benchmarks experienced a surge of over 5% on Monday, reaching their highest levels since July 31, following Trump's response to Iran's proposed terms for a peace agreement. He stated that the United States controlled the strait and had cleared the region of Iranian mines, sparking concern among market analysts.

Tim Waterer, chief market analyst at KCM Trade, noted a growing divide between the U.S. and Iran regarding the specifics of any potential agreement. This disparity has led to a decline in optimism, contributing to the current upward pressure on oil prices. Saudi Aramco, the world's largest oil producer, has postponed the restart of its Jazan refinery, which has a capacity of 400,000 barrels per day, to August 30. This delay was prompted by the Houthis' recently claimed attacks on the plant.

The ongoing risk of constraints on both the Strait of Hormuz and the Bab el-Mandeb remains significant, as even intermittent disruptions or threats could lead to higher insurance costs and force ships to take longer routes, thereby curbing energy flows in the near term. According to analysts at Barclays, crude oil and refined product net exports through the Strait of Hormuz averaged 3 million barrels per day in the week ending August 7, a decrease from the previous week's 4.4 million bpd.