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

Oil prices surged on Tuesday as the prospect of ending the Middle East conflict appeared further away, with Iran signaling a more aggressive military stance and the US refusing to extend a ceasefire agreement, raising concerns about energy supply. A senior Iranian official revealed to Reuters on Monday that Iran intended to adopt a "fully offensive" military posture due to stalled negotiations for a permanent peace deal with the US.

Meanwhile, Washington denied extending a temporary ceasefire agreement. The progress towards peace talks and the resumption of oil tanker traffic through the vital Strait of Hormuz has stalled, potentially prolonging the conflict initiated by US and Israel attacks on Iran on February 28. Brent crude futures climbed 27 cents, or 0.3%, to $91.14 by 0003 GMT, after surging to their highest level since July 30 on Monday.

US West Texas Intermediate crude futures increased by 42 cents to $85.04 a barrel, after jumping over one percent earlier in the session to $85.37, their highest since July 31. Market analyst Tim Waterer from KCM stated, "Oil has jumped at the beginning of the week as US-Iran relations appear increasingly unstable. A deal to reopen the Strait of Hormuz remains elusive, and shipping volumes are at a trickle."

The Strait of Hormuz and Bab el-Mandeb have become highly significant chokepoints in the current supply-risk narrative. Iran was negotiating an agreement to manage the strait with Oman, and they claimed they were close to reaching an agreement. However, President Trump responded to those talks with a threat to bomb the Gulf state, a long-standing US security ally.

Glimmers of diplomatic hope emerged as reports suggested President Trump had initiated back-channel discussions with the Islamic Revolutionary Guard Corps. US crude oil inventories were projected to have decreased last week, along with product inventories, according to a preliminary Reuters poll on Monday.