Oil prices settle slightly higher on supply worries as Trump rejects Iran proposal

Oil prices edged up marginally on Monday amid concerns over continuing supply disruptions, following Qatar's pledge to engage US and Iran in discussions aimed at resolving the conflict and reopening the Strait of Hormuz. The value of oil jumped over $4 a barrel in initial trading after President Donald Trump declined Iran's proposal to reopen the Strait of Hormuz, which would have ended the ongoing hostilities.

Brent futures rose by 96 cents, or 0.9%, to settle at $105.28 a barrel, while US West Texas Intermediate (WTI) crude increased by 19 cents, or 0.2%, to $92.60. Qatar's mediators are set to conduct individual talks with Iranian Foreign Minister Abbas Araqchi in New York and with US representatives on Monday or Tuesday, according to a source familiar with the negotiations.

The focus of these talks is expected to be an amended version of Iran's seven-day proposal presented last week at the United Nations General Assembly. Iran has reiterated that diplomacy is the only way to resolve its tensions with the US and Israel, following Trump's rejection of the Iranian proposal to resolve the dispute and end hostilities.

In a recent interview with Axios, Trump indicated that he anticipates US negotiators to engage in additional talks this week. Saudi Foreign Minister Prince Faisal bin Farhan arrived in Washington on Monday for discussions with US Secretary of State Marco Rubio, amid escalating tensions between Riyadh and Yemen's Iran-backed Houthi rebels.

September crude oil exports from key Middle East producers surged to 12.8 million barrels per day, the highest level since the war began in February, according to preliminary data from Kpler. This spike in exports was driven by an increase in shipments via the Strait of Hormuz, which is projected to reach around 7.4 million bpd this month.

Despite a rise in vessel traffic through the Strait of Hormuz, flows remain below pre-conflict levels, contributing to a persistent supply shortage, as noted by UBS analyst Giovanni Staunovo. Approximately one-fifth of the world's oil supply — roughly 20 million bpd — previously passed through the Strait of Hormuz prior to the US and Israel's February attack on Iran.

Saudi Aramco is contemplating offering discounts on its official selling prices for oil transported off Oman to alleviate buyers from the burden of record freight rates. In an attempt to alleviate higher gasoline and diesel prices, the White House is contemplating regulatory relief that would permit the broader sale of red-dyed diesel.

Additionally, the US Transportation Department finalized substantially lower vehicle fuel economy standards on Monday. Washington's recent proposal of a potential ban on diesel exports due to soaring fuel prices in recent weeks has widened the gap between US crude oil futures and the global Brent benchmark, signaling that markets anticipate US refiners to process less crude oil if their diesel output remains confined to domestic consumption.

The premium of futures for Brent over WTI rose to its highest since May for the third consecutive session, potentially prompting energy firms to dispatch tankers to the US to procure more US crude for international export. Diesel prices have surged owing to supply disruptions stemming from conflicts in the Middle East and Ukraine, as well as export bans imposed in Russia and China.

Goldman Sachs predicted that while Europe and Latin America are the primary markets for US diesel exports, a tightening of diesel supplies would likely rapidly spread globally. Moscow placed a ban on diesel exports to ensure domestic supplies remain adequate due to refinery disruptions caused by Ukrainian attacks on Russia's energy infrastructure.

On Monday, Ukrainian President Volodymyr Zelenskiy stated that Ukraine's military had targeted Russian oil facilities in the Krasnodar region.