Oil Closes at Three-Week High as Hopes of US-Iran Peace Deal Fade

Oil prices settled at their highest level in more than three weeks on Tuesday after Iran said it would adopt a more offensive stance and the Strait of Hormuz would remain closed, while the United States ruled out extending a ceasefire.

Brent crude futures finished up 15 cents, or 0.17%, at $91.02 a barrel, while US West Texas Intermediate crude futures closed up 44 cents, or 0.52%, at $84.94 a barrel. Both contracts closed at their highest since 24 July.

"To some extent, the market has muted movement to the daily headlines just due to the amount of noise since June with no real results," said Darrell Fletcher, managing director of Commodities at Bannockburn Capital Markets. "Covert or dark shipments slipping from the Strait of Hormuz seem to be more than the market expected ... adding to some buffering from higher prices."

Supply Adjustments and Shipping Activity

Saudi Aramco has resumed oil loadings from inside the strait and is offering cargoes for loading via ship-to-ship transfers off Fujairah in the UAE, according to shipping data and trade sources. Two Chinese shipping giants have also started collecting oil cargoes outside the Gulf, according to industry executives, tanker trackers, and brokers. While that has eased some supply concerns, vessel traffic through the strategic waterway remains in the single digits, not including vessels passing through with their transponders switched off.

Peace Deal Hopes Dim

Iran will keep the strait closed until the United States meets the conditions of the interim deal signed in June, top Iranian negotiator Mohammad Baqer Qalibaf said in comments published by state media on Tuesday. Trump, who previously labelled that deal "over," said on Tuesday that talks between the United States and Iran were neither taking place nor scheduled, but the strait was open. His comments were met with a muted market reaction.

Qalibaf's comments came after a senior Iranian official told Reuters on Monday that Iran will shift to a "fully offensive" military posture as efforts have stalled toward a permanent end to the war. Mohit Kumar, an economist at brokerage Jefferies, said the two countries are not yet at the pain points where either would want to make a deal. "Hence, we see further pain in the near term and upward pressure on oil prices," Kumar said.

Iran has separately been negotiating with Oman on a management agreement over the strait and says they are close to a deal. Trump responded to those talks with a threat to bomb Oman, a longstanding US security partner.

Middle East Attacks Continue

Yemen's Houthis launched missiles in an attack on vessels they described as a Saudi military ship and four escorts in the Red Sea. Separately, the United Kingdom Maritime Trade Operations received a report on Tuesday that a vessel was struck by an unknown projectile while transiting out of the strait, causing engine room damage and a crew casualty. Later in the day, the United Arab Emirates said it detected two ballistic missiles launched from Iran against the country.

Four sources told Reuters that Russia is rerouting Kazakhstan's crude oil exports from the Baltic port of Ust-Luga to the Black Sea port of Novorossiysk, freeing up capacity for more Russian oil exports from the Baltic amid heightened Black Sea security risks. The move would allow Russia to replace Kazakh barrels at Ust-Luga with its own crude exports, while Ukrainian drone attacks make it more difficult for Russian exporters to secure tankers for Black Sea loadings.

Market Sentiment: 

The sentiment is cautiously bullish, reflecting renewed geopolitical tensions and fading hopes for a US-Iran peace deal. Iran's shift to a "fully offensive" posture and the continued closure of the Strait of Hormuz keep supply disruption risks elevated. The muted price reaction to Trump's comments suggests that markets have largely priced in the diplomatic stalemate and are now focused on physical supply dynamics.

The resumption of Saudi Aramco loadings and Chinese shipping activity outside the Gulf provides some supply relief, but vessel traffic through the strait remains in the single digits, with dark shipments offering only partial compensation. The ongoing vessel attacks and Iran's missile launches against the UAE underscore the persistent threat to shipping in the region.

For investors, the oil market remains range-bound, supported by geopolitical risk but capped by the gradual adjustment of supply chains. The lack of a clear diplomatic breakthrough suggests upward pressure on prices is likely to persist in the near term. The Jefferies view that neither side is at a pain point for a deal reinforces the expectation of continued tension. The risk of further escalation, including potential US military action against Oman, adds an asymmetric upside risk to prices. The next catalysts will be any diplomatic developments or further military incidents. The sentiment is cautiously positive, with the market pricing in sustained risk but limited disruption so far. The oil price is likely to remain volatile, with a bias toward the upside as long as the strait remains closed and geopolitical tensions persist.

Disclaimer:
This content has been generated using AI technology and is intended for informational purposes only. While efforts have been made to ensure accuracy and relevance, this text should not be considered professional advice or an official statement. Always verify information from authoritative sources before making any decisions. This is not financial advice.