Oil climbs as fading US-Iran peace hopes raise supply risks

Oil prices climbed on Tuesday as the odds faded for a resolution to the Middle East conflict, with Iran signaling a more aggressive military stance and the United States refusing to extend a ceasefire agreement, raising concerns about potential supply disruptions. A senior Iranian official stated that Iran would adopt a fully offensive military posture as peace talks stalled, while the United States ruled out extending the temporary ceasefire pact.

Brent crude futures surged 62 cents, or 0.7%, to $91.49 a barrel, following Monday's gains to their highest level since July 30. U.S. West Texas Intermediate crude futures increased by 75 cents to $85.25 a barrel, although they retreated from an earlier session's 1% rise to $85.37, their highest since July 31. The suspension of progress on peace negotiations and resumption of oil tanker traffic through the strategic Strait of Hormuz has been halted, potentially prolonging the conflict that the United States and Israel initiated with attacks on Iran on February 28.

Oil prices have risen at the beginning of the week as U.S.-Iran relations appeared increasingly unstable, according to Tim Waterer, chief market analyst at KCM. Despite a slight increase in shipping numbers, the lack of any deal to reopen the Strait of Hormuz continues, with attacks persisting. Yemen's Houthis launched missiles at a vessel they claimed to be a Saudi military ship and four escorts in the Red Sea, according to their military spokesperson, Yahya Saree.

The absence of a deal will influence oil price expectations in the fourth quarter and beyond into 2027, said DBS Bank’s head of energy research, Suvro Sarkar. Oil prices are expected to fluctuate between $80 and $100 a barrel in the near term as long as the deal-related uncertainty persists. Separate negotiations between Iran and Oman on managing the Strait of Hormuz are reportedly nearing completion, but a threat from President Trump to bomb the Gulf state, a longstanding U.S. security partner, has emerged in response to those talks.

U.S. crude oil inventories were anticipated to have declined last week alongside product inventories, as per a preliminary Reuters poll.