Oil Prices Climb as U.S.-Iran Diplomatic Hopes Fade

Oil prices continued their upward trend on Thursday, building on the previous day's significant rally, as hopes for a quick diplomatic end to the conflict between the United States and Iran diminished.

By 9:28 a.m. ET, Brent crude futures, the international benchmark, were up 2.2% at $105.32 per barrel. U.S. West Texas Intermediate (WTI) crude futures gained 1.7% to trade at $93.68 per barrel. The move follows a session on Wednesday where Brent settled over 3% higher and WTI rose nearly 2%.

Geopolitical Tensions Escalate

The latest price surge was fueled by comments from Iranian President Massoud Pezeshkian at the United Nations General Assembly. Pezeshkian stated that Iran would not yield to U.S. pressure, though he affirmed Tehran remains open to a diplomatic solution.

His remarks came a day after U.S. President Donald Trump warned of potential "devastating strikes" against Iran if a deal to end the conflict is not reached. A senior Iranian official told Reuters that while Tehran is reviewing Washington's response to a ceasefire proposal, significant differences between the two sides persist.

Strait of Hormuz Remains a Key Risk

Ad

Central to the market's concern is Iran's effective blockade of the Strait of Hormuz, a critical chokepoint that handled about a fifth of the world's oil and LNG supply before the conflict began in late February. On Wednesday, Iranian security chief Mohsen Rezaei said the waterway would not be reopened until Tehran's conditions are met, dampening market optimism for a swift resumption of supply from the Gulf.

Indirect negotiations are reportedly underway, covering the potential reopening of the strait and the lifting of a U.S. naval blockade on Iran. The downbeat comments on a resolution overshadowed earlier news that Saudi Arabia had restarted an east-west pipeline to the Red Sea and that Iraq had increased its oil exports.

Economic Data and Inventories

Adding to market dynamics, strong U.S. business activity data, combined with oil prices back above the $100 mark, have increased expectations for further interest rate hikes from major central banks. "Rising oil prices have contributed to a hawkish repricing of the Fed's policy path," analysts at BCA Research noted in a report, referencing the Federal Reserve's rate hike last week amid inflation concerns.

Meanwhile, the U.S. Energy Information Administration (EIA) reported on Wednesday that domestic crude inventories unexpectedly rose by 3.0 million barrels last week, against analyst forecasts for a 640,000-barrel draw. However, the market appeared to focus more on geopolitical risks than the bearish inventory figure. The EIA data also showed a 1.7 million-barrel drop in gasoline stocks and a 400,000-barrel decline in distillate inventories.