Oil Prices Hold Near Highs After 5% Rally on Fading Hormuz Deal Hopes

Oil prices steadied in early Asian trade on Tuesday, holding onto gains after surging more than 5% in the prior session as hopes for an imminent deal to reopen the vital Strait of Hormuz faded.

Hormuz Reopening Hits Snag

The sharp rally on Monday was triggered by reports that both the U.S. and Iran are now demanding compensation for recent military attacks, dashing expectations that a diplomatic resolution was near. The development reverses market sentiment from the previous week, when U.S. officials had suggested a deal was close, causing prices to fall.

According to the source material, Iran stated it was near a final agreement with Oman on new shipping routes through the strait. However, Tehran now insists that the U.S. must lift all sanctions and provide compensation before the waterway can be fully reopened, complicating any potential agreement.

Market Reaction

The renewed geopolitical uncertainty sent crude prices sharply higher, reflecting the market's sensitivity to potential supply disruptions from the key Middle Eastern chokepoint.

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• Benchmark Brent and West Texas Intermediate (WTI) futures both settled up more than 5% on Monday.
• In early Tuesday trading, WTI futures for September delivery pulled back slightly by 0.1% to $81.05 a barrel.

Before its closure, the Strait of Hormuz was the transit point for approximately one-fifth of the world's oil supplies. Its closure has been a significant factor supporting crude prices amid regional conflict.

Broader Supply Risks

Adding to supply-side anxiety, Yemen’s Iran-backed Houthi group claimed it had struck Saudi Aramco’s Jazan refinery over the weekend. The group has also threatened to open a new front by attacking shipping and oil infrastructure in the Red Sea, further heightening concerns over the security of global energy supplies.