Oil Prices Rebound as Diplomatic Narrative Falters

Oil prices have rebounded partially after Monday's sharp decline, but traders are questioning whether the market has 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. This recovery comes after US President Donald Trump postponed strikes on Iran and said negotiations were under way.

Tehran challenged that account, saying it was not negotiating with Washington and had scheduled no meetings. Another vessel was struck near the Strait of Hormuz, adding to doubts that supply risks are disappearing. 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. Goldman Sachs has outlined a scenario in which Hormuz disruption sends Brent above $120, although this is not the bank's base case. OPEC+ is raising production targets, and non-OPEC supply is responding to higher prices.

Anindya Banerjee, head of commodity research at Kotak Securities, expects crude to cool into 2027 as supply outside the conflict zone expands and inventories rebuild once flows normalise. This longer-term pressure matters because Monday's decline was not driven by diplomacy alone, but also by OPEC+ approving a September quota increase of about 188,000 barrels a day.