Oil Prices Edge Higher Amid Uncertainty Over Iran Diplomacy

Oil prices edged higher on Tuesday as traders questioned whether Monday's sell-off had priced in a diplomatic breakthrough that may not exist. Brent crude rose 1.3% to $84.89 a barrel, while West Texas Intermediate gained 1% to $81.11.

The market treated US President Donald Trump's announcement of postponed strikes on Iran and suggested talks as evidence that the probability of a supply shock had fallen sharply.

However, Tehran challenged this account, saying it was not negotiating with Washington and had scheduled no meetings. Foreign Ministry spokesman Esmaeil Baghaei said no negotiations with the US were taking place and no meetings had been arranged.

Nikos Tzabouras of Tradu told The Wall Street Journal that earlier negotiations had failed to deliver a comprehensive agreement and that another diplomatic setback could revive hostilities and oil's geopolitical premium.

JPMorgan estimates that every month of disruption could add about $7 to $8 a barrel to Brent, while Goldman Sachs has outlined a scenario in which Hormuz disruption sends Brent above $120. However, this is not the bank's base case: it expects prices to ease as tensions subside.