US President Donald Trump’s rejection of an Iranian peace proposal to resolve the conflict and reopen the Strait of Hormuz, a critical route for global oil shipments, has pushed oil prices up more than 3 percent on Monday.
The uncertainty over a diplomatic resolution to the US-Iran conflict renewed concerns about Middle East supply disruptions.
In the event, Brent crude futures rose $3.98, or 3.82 percent, to $108.30 a barrel by 0959 GMT, while US West Texas Intermediate (WTI) gained $3.52, or 3.81 percent, to $95.93 a barrel.
Hamad Hussain, senior climate and commodities economist at Capital Economics, reportedly credited the sudden rise in oil prices to Trump’s rejection of the proposal.
Iran announced the peace proposal last week at the United Nations General Assembly in New York, saying it had been transmitted to the United States through Qatari mediators.
Trump said on Saturday that he had rejected the proposal but told Axios on Sunday that US negotiators were expected to hold further talks this week.
Despite the renewed geopolitical uncertainty, crude exports from major Middle East producers recovered in September, preliminary data from Kpler showed.
Exports rose to 12.8 million barrels per day, the highest level since the conflict began in February, as Saudi Arabia and the United Arab Emirates increased shipments.
Shipments through the Strait of Hormuz were also expected to reach about 7.4 million bpd this month, indicating a partial recovery in the critical shipping route.
Hussain said the increased flows through Hormuz had eased some upward pressure on prices, but the broader oil market remained undersupplied.
“While greater flows through the Strait of Hormuz are easing some of the upward pressure on prices, the bigger picture is that the oil market remains in a deficit,” he said.
Further geopolitical risks remain after the Saudi-led coalition in Yemen said it intercepted two ballistic missiles and two drones launched by Iran-backed Houthi forces towards Saudi Arabia.
Oil markets are also being affected by concerns over global diesel supplies and a possible US ban on diesel exports.
Brent gained 0.4 percent last week, while WTI fell more than 7 percent amid concerns that restrictions on US diesel exports could reduce refinery output.
European low-sulphur gasoil’s premium to Brent crude futures reached a record of about $95 a barrel last week after Trump backed the idea of restricting US diesel exports to ease domestic fuel prices.
Goldman Sachs said a US diesel export ban could quickly tighten supplies in other regions as Europe and Latin America seek alternative cargoes.
The bank estimated that every week of a US diesel export ban could increase European wholesale diesel prices by about $3 a barrel, or just under 2 percent.
Meanwhile, Ukraine’s military has also struck Russian oil facilities in the Krasnodar region, adding another layer of geopolitical risk to the global energy market.
