Oil Prices Rebound on Uncertainty Over US-Iran War Diplomacy

Oil prices have recovered from a sharp drop in the previous session, rising by 1% on Tuesday as concerns about Middle East supply disruptions persist.

The price increase was fueled by uncertainty over diplomatic efforts to end the US-Iran war, which has disrupted oil shipments. Front-month Brent futures rose $1.12 (1.3%) to $84.89 a barrel, while US West Texas Intermediate (WTI) crude increased by 77 cents (1%) to $81.11.

US President Donald Trump's statement that he was holding off on new attacks on Iran pending ongoing talks to end their war and settle claims over the Strait of Hormuz contributed to the price drop in the previous session. However, Iran's Foreign Ministry spokesman Esmail Baghaei rejected Trump's claim, stating that no negotiations with the US were taking place.

Analysts at ING noted that the scale of the sell-off seemed 'fairly overdone' given the ongoing uncertainty. They warned that a renewed escalation was possible due to the Hormuz dispute being a central sticking-point in talks. The analysts also pointed out that Iran's denial of talks and Trump's warnings if no deal materialized left ample room for a renewed escalation.

Despite this, shipping traffic at key Gulf waterways remained largely unchanged at the start of the week. However, the Strait of Hormuz remains a concern for vessels, with an incident reported on Tuesday 20 nautical miles northeast of Oman's Al Khasab.