Oil prices rose more than three per cent on Tuesday as stark differences between the US and Iran over a proposal to end the war in the Middle East raised concerns that supply disruptions upending the global oil market are likely to be prolonged.
Brent crude futures gained $3.10, or 2.97 per cent, to $107.31 a barrel by 14:01 ET (18:01 GMT), and US West Texas Intermediate futures were up $3.56, or 3.63 per cent, at $101.63. Both benchmarks climbed nearly three per cent on Monday.
US President Donald Trump said on Monday that ceasefire talks with Iran were on "life support," pointing to disagreements over Tehran's demands of a cessation of hostilities on all fronts, the removal of a US naval blockade, the resumption of Iranian oil sales and compensation for war damage.
Iran also emphasised its sovereignty over the Strait of Hormuz, through which about a fifth of global oil and liquefied natural gas normally flows. "Markets are doubting that a peace deal is within reach," StoneX analyst Alex Hodes said.
The US Energy Information Administration on Tuesday said it now assumes the strait will be effectively closed through late May. The agency had earlier expected the waterway would be shut through late April. Even after flows resume through the Strait of Hormuz, it will take at least until late 2026 or early 2027 for oil output and trade patterns to return to pre-conflict levels, the EIA said.
Disruptions linked to the near-closure of the strait have prompted producers to curtail exports, with a Reuters survey on Monday showing OPEC oil output in April fell to its lowest level in more than two decades.
The EIA estimates 10.5 million barrels per day of output were lost during April across the Middle East due to the strait closure, limiting exports.
Shut-ins will peak at around 10.8 million bpd in May as maxed-out storage tanks pressure producers to cut output further, the EIA said. Other sources have pegged the supply losses much higher. J.P. Hanson, global head of oil and gas at Houlihan Lokey, said the conflict has created a 14 million bpd supply gap.
"The market now faces an aggregate billion-barrel deficit, compounded by drained strategic reserves and limited capacity to replace lost volumes," Hanson said in an email.
Saudi Aramco CEO Amin Nasser warned on Monday that disruptions to oil exports through the strait could delay a return to market stability until 2027, with the loss of about 100 million barrels of oil per week.
Some independent Chinese refiners are curtailing fuel output on weakening profit margins as they battle weak domestic demand and excess product, trade and refining sources said.
US crude stocks were estimated to have dropped by about 2.1 million barrels last week, an extended Reuters poll of analysts showed. US fuel inventories are also expected to have declined last week, the poll showed.
Walt Chancellor, energy strategist at Macquarie Group, said strong waterborne export flows of crude and products are likely for the next several weeks.
Market participants were also keeping a close eye on Trump's planned meeting with Chinese President Xi Jinping on Thursday and Friday after Washington imposed sanctions on three individuals and nine companies for facilitating Iranian oil shipments to China.
Tariffs imposed during the US-China trade war have halted most Chinese imports of US oil and LNG, which were worth $8.4 billion in 2024, the year before Trump began his second term.
(Reporting by Ahmad Ghaddar Additional reporting by Anmol Choubey in Bengaluru and Trixie Yap in Singapore Editing by David Goodman, Joe Bavier, Rod Nickel and Sanjeev Miglani)