Brent crude futures climbed about four per cent on Tuesday after the US military carried out strikes in Iran, adding to uncertainty over whether a deal would be reached soon to end the war and open up shipping flows through the Strait of Hormuz.
Iran has effectively halted nearly all non-Iranian shipping into and out of the Persian Gulf via the Strait of Hormuz since the war began in late February, choking off about a fifth of global oil and liquefied natural gas (LNG) flows.
Global benchmark Brent rose $3.96, or 4.1 per cent, to $100.10 a barrel at 12:27 ET (16:27 GMT), while US West Texas Intermediate (WTI) crude fell $2.46, or 2.6 per cent, to $94.14.
On Monday, Brent closed at its lowest since April 20 on expectations the US and Iran would soon reach a deal. Those peace hopes were reflected in WTI prices on Tuesday since WTI did not settle on Monday due to the US Memorial Day holiday.
WTI was on track to close at its lowest since April 22 on Tuesday. Iran said the United States had violated a ceasefire after the US conducted what it called defensive strikes in southern Iran, while US Secretary of State Marco Rubio said negotiating a deal to halt the conflict could, "take a few days".
Iran's foreign ministry said US strikes in Iran's southern Hormozgan province, where Iranian media reported sounds of explosions early on Tuesday, represented a "gross violation" of a tenuous ceasefire in place for nearly seven weeks.
Both sides had previously indicated progress on a memorandum of understanding that could halt the war and restart shipping through the blockaded Strait of Hormuz, while giving negotiators 60 days to negotiate more complex issues including Iran's nuclear programme.
"We are still waiting for more details on a potential deal," said Giovanni Staunovo at UBS. "Meanwhile we see renewed tensions in the Middle East, while flows through the strait remain restricted."
The US strikes happened as Iran's top negotiator and its foreign minister were in Doha for talks with Qatar's prime minister on a potential deal with the US to end the three-month-old war.
"While differences between the parties have narrowed, any eventual peace deal would likely lead only to a gradual reopening, meaning the current tight supply outlook could take months to normalise," said Ole Hansen at Saxo Bank.
The Nikkei newspaper, citing a Middle East diplomatic source, reported that Iran would clear mines from the strait within a 30-day window after two countries reach a deal to end hostilities. After that, vessels from all countries would be able to navigate freely and safely, with Tehran also ending transit-fee collection, Nikkei said.
Ship-tracking data showed three LNG tankers passed through the strait in recent days, heading to Pakistan, China and India, along with a supertanker carrying Iraqi crude to China that had been stranded for nearly three months.
Pakistan plans to boost domestic storage for crude oil and refined products to increase its energy security, according to a government document that was shared with oil producers and some of the world's leading trading firms.
(Reporting by Scott DiSavino in New York and Alex Lawler and Robert Harvey in London; Additional reporting by Pooja Menon and Emily Chow in Singapore; Editing by David Holmes and Emelia Sithole-Matarise)