Oil Prices Rise Over 1% To $85 After Sharp Sell-Off As US-Iran War Resolution Remains Uncertain 

Mumbai, August 4: Oil prices edged higher on Tuesday after plunging in the previous session, as concerns over the security of Middle Eastern energy supplies persisted amid uncertainty over diplomatic efforts to end the US-Iran war. The prospect of negotiations had triggered a sharp decline in crude prices a day earlier, but the lack of clarity over whether formal talks are actually underway has kept traders cautious and left the market vulnerable to renewed volatility. 

Brent, WTI Rebound After Steep Monday Decline 

Brent crude futures rose 1.3% to $85 a barrel, after falling 7% on Monday to a three-week low. US West Texas Intermediate (WTI) crude was up 0.9% at $81 a barrel, following a more than 5% decline in the previous session. 

The rebound came as traders reassessed the prospects of a diplomatic resolution to the conflict and the potential impact on crude supplies. While the possibility of a ceasefire or negotiations could ease fears of prolonged supply disruptions, uncertainty around the diplomatic process has prevented markets from fully pricing out geopolitical risks. 

Trump Says Talks Underway, Iran Denies Negotiations 

Oil prices came under pressure after US President Donald Trump said on Sunday that he was holding off on new attacks against Iran while talks were underway to end the war and settle a dispute over control of the strategically important Strait of Hormuz. 

Benchmarks staged a partial rebound as traders doubted diplomacy over the Middle East. Source: oilprice.com 

However, Iran rejected Trump’s claim on Monday. 

The conflicting statements have added to uncertainty in oil markets, with traders now watching closely for signs of whether diplomatic engagement can actually take place. 

Analysts warned prices could quickly rebound if military attacks resume or tankers operating near the Strait of Hormuz come under fire again. 

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Strait Of Hormuz Remains Key Risk 

The dispute over the Strait of Hormuz remains at the centre of the conflict. The crucial waterway connects major Gulf oil producers with global markets and, before the conflict, carried energy exports equivalent to about 20% of global oil consumption. 

Washington has said a memorandum of understanding agreed in June required Iran to reopen the waterway, while Tehran maintains that the agreement preserved its authority over the strategic passage. 

Despite the sharp fall in prices on Monday, supply risks have not disappeared. 

Shipping Disruptions Add To Supply Concerns 

Shipping activity in the region has also been affected by the conflict. Six Saudi-flagged supertankers recently changed course in the Gulf of Aden, while two tankers carrying Saudi oil crossed the Bab el-Mandeb Strait. 

Traffic through the Strait of Hormuz between Iran and Oman has also slowed following reports of vessel attacks.  

The disruptions have increased voyage times and insurance costs for shipping companies and forced some vessels to take longer routes, adding to concerns over the reliability of energy supplies from the region. 

Oil Market Faces Two-Way Risk 

The outlook for crude prices remains highly dependent on geopolitical developments. Any meaningful progress towards a diplomatic settlement could put further pressure on oil prices by reducing concerns over supply disruptions and improving the prospects for normal shipping through key regional waterways. 

However, a fresh escalation in fighting, attacks on tankers or further disruption around the Strait of Hormuz could trigger a sharp rebound in crude prices. 

For now, traders are caught between hopes of de-escalation and the continuing threat of supply disruptions. The competing forces are likely to keep oil prices volatile, with the market closely tracking developments around US-Iran diplomacy, shipping activity and the security of key energy routes. 

Source

•  oilprice.com