Oil Prices Rise as Supply Concerns Persist Despite Diplomatic Signals

Oil prices edged higher on Tuesday as concerns over disrupted supply in the Gulf outweighed hopes for a diplomatic breakthrough between the United States and Iran. The rebound followed a sharp decline a day earlier, when markets reacted to comments from Donald Trump suggesting progress toward a potential agreement.

Brent crude futures rose $1.25, or 1.3 per cent, to $101.19 a barrel by midday, while US West Texas Intermediate climbed $2.15, or 2.4 per cent, to $90.28. The gains came after prices dropped more than 10 per cent on Monday, when Trump announced a five-day delay to planned strikes on Iranian power infrastructure and said talks had produced “major points of agreement.”

Iran quickly rejected those claims, denying any negotiations with Washington and dismissing the statements as misinformation. Officials in Tehran also warned that the situation in the region remains volatile, as missile exchanges between Iran and Israel continue.

The ongoing conflict has severely disrupted energy flows through the Strait of Hormuz, a critical route that handles around 20 per cent of global oil and liquefied natural gas shipments. While a small number of tankers managed to pass through the strait on Monday, shipping activity remains far below normal levels.

Market analysts say the temporary pause in US military action removed some of the immediate risk premium from prices, but uncertainty over supply continues to support the market. Traders remain cautious, noting that the waterway is still far from fully operational.

Energy experts warn that prolonged disruption could have significant consequences. The International Energy Agency has described the situation as the most severe oil supply shock on record. The agency is in discussions with governments in Asia and Europe about the possible release of strategic reserves if conditions worsen.

Investment bank Macquarie said in a note that oil prices are likely to remain supported even if tensions ease slightly. It projected a price floor between $85 and $90 per barrel, with a possible return toward $110 unless the Strait of Hormuz is fully reopened. In a more severe scenario, Brent could rise as high as $150 if disruptions persist into the coming weeks.

Efforts to ease supply shortages are already underway. The United States has temporarily relaxed sanctions on Russian and Iranian oil already at sea, allowing additional cargoes to reach global markets. Traders have also begun offering Iranian crude to Asian buyers, including refiners in India, at a premium.

Meanwhile, attacks on energy infrastructure continue to add pressure. Reports from Iran indicated that gas facilities and pipelines were struck in recent days, raising concerns about further damage to production and distribution networks.

Despite the volatility, some officials have sought to calm markets. Chris Wright downplayed the broader economic risks during an energy conference in Houston, though industry leaders warned that the conflict could have lasting effects on global growth.

With geopolitical tensions unresolved and supply routes under strain, oil markets are expected to remain highly sensitive to developments in the region in the weeks ahead.