Oil prices extended their recent gains on Tuesday as uncertainty surrounding the reopening of the Strait of Hormuz continued to unsettle global energy markets and revive concerns about inflation.
The latest movement came as hopes of a quick agreement between the United States and Iran appeared to weaken, with both sides maintaining positions that could complicate efforts to restore normal shipping through the strategically important waterway.
Brent crude, the international benchmark, was quoted at $87.62 per barrel after slipping marginally by 10 cents, or 0.11 per cent, by 0405 GMT. U.S. West Texas Intermediate crude was also slightly lower, declining five cents, or 0.06 per cent, to $82.08 per barrel.
Despite the small intraday declines, the broader direction of the market remained firmly influenced by geopolitical tensions. Oil has gained roughly 10 per cent over the past week as traders increasingly price in the possibility that disruption around the Strait of Hormuz could last longer than previously expected.
The Strait is a critical route for global energy supplies, making any prolonged disruption a major concern for oil-importing countries, financial markets and consumers.
The latest setback to hopes of a diplomatic breakthrough followed comments by U.S. President, Donald Trump, who said Washington would seek compensation from Iran as part of any eventual peace negotiations.
Trump’s position came after Tehran demanded reparations from the United States as one of the conditions for resolving the crisis. The opposing demands have added another layer of difficulty to negotiations already complicated by disagreements over the reopening of the waterway.
The U.S. President had previously indicated that he was taking a less aggressive approach to the conflict, saying he was “low-keying” his response. That appeared to raise expectations that economic and diplomatic pressure could eventually produce a negotiated settlement without further military escalation.
However, the latest exchange between Washington and Tehran has made the prospect of a rapid agreement less certain.
Both major oil benchmarks jumped by about five per cent on Monday before extending their gains into Tuesday trading. The sharp increase demonstrated how quickly crude markets can react to developments surrounding the Hormuz situation.
Market analysts said the absence of encouraging information about negotiations was keeping upward pressure on crude prices.
Jason Wong of BNZ said the lack of positive developments regarding talks to reopen the strait was contributing to the rise in oil prices.
Stephen Innes, global strategist at Quintex Intel, similarly described the situation as a high-stakes confrontation in which both Washington and Tehran were using energy supplies as leverage.
The uncertainty has consequences beyond the oil market. Higher crude prices can increase transportation and production costs, eventually putting additional pressure on consumer prices.
That has renewed concerns about inflation at a time when investors are closely watching the U.S. Federal Reserve’s interest-rate outlook.
A sustained increase in energy prices could make the fight against inflation more difficult. Although weaker-than-expected U.S. employment figures had recently reduced expectations of an immediate rate increase, renewed inflationary pressure from oil could force policymakers to reconsider their position.
Cleveland Federal Reserve President, Beth Hammack, said on Monday that a single 25-basis-point interest-rate move would probably have only a limited effect on the economy.
Her comments suggested that policymakers could need more than one adjustment if inflationary pressures remain persistent, although she cautioned against predicting the eventual number of moves.
Investors are now turning their attention to the latest U.S. consumer price data, scheduled for release on Wednesday. The figures could provide an important indication of whether inflation is easing or whether rising energy costs are beginning to create renewed pressure.
The data could therefore play a significant role in shaping expectations about the Federal Reserve’s next policy decision.
The oil market’s latest rally also comes amid mixed trading across Asian equity markets. Investors remained cautious as they assessed the implications of higher crude prices, geopolitical uncertainty and the outlook for global interest rates.
Markets in Shanghai, Wellington, Taipei and Manila moved lower, while Hong Kong, Sydney, Singapore and Seoul recorded gains. Tokyo’s stock market was closed for a public holiday.
At around 0215 GMT, the Hang Seng Index in Hong Kong was up 0.1 per cent at 25,946.16 points, while Shanghai’s Composite Index declined 0.5 per cent to 3,948.19.
West Texas Intermediate was trading around $82.40 per barrel, up 0.3 per cent at that point, while Brent North Sea crude was also 0.3 per cent higher at $87.97.
Currency markets were comparatively steady. The euro strengthened slightly against the dollar to $1.1546 from $1.1543, while the pound rose to $1.3512 from $1.3508. The dollar slipped against the yen to 159.18 yen from 159.31 yen.
On Wall Street, the Dow Jones Industrial Average ended the previous session down 0.1 per cent at 53,975.98. London’s FTSE 100 also fell 0.4 per cent to close at 10,862.50.
The combination of geopolitical uncertainty and elevated oil prices means investors are likely to remain sensitive to every development from Washington and Tehran.
For energy markets, the central question remains whether the Strait of Hormuz can be reopened under a negotiated arrangement or whether disagreements between the United States and Iran will prolong the disruption.
The waterway’s importance to international oil trade means that any delay in restoring normal traffic can have effects far beyond the Middle East.
For consumers and businesses, prolonged high crude prices could translate into higher fuel, transport and production costs. For central banks, the resulting inflationary pressure could complicate efforts to reduce borrowing costs.
With negotiations still uncertain and U.S. inflation figures due shortly, traders are likely to remain cautious. Any fresh indication of progress toward reopening the Strait could quickly ease oil prices, while further deterioration in relations between Washington and Tehran could trigger another sharp rise.
For now, the market remains caught between hopes of diplomatic progress and fears that the Hormuz crisis could persist, leaving oil prices vulnerable to further volatility.