Crude prices climbed on Monday after U.S. President Donald Trump rejected an Iranian proposal aimed at resolving the conflict and reopening the Strait of Hormuz, although Washington said further talks could take place this week.
Oil prices rose more than 2% on Monday as uncertainty surrounding U.S.-Iran negotiations renewed concerns about the security of crude supplies from the Middle East.
The move followed U.S. President Donald Trump's rejection of an Iranian peace proposal that sought to resolve the conflict and facilitate the reopening of the Strait of Hormuz, a critical route for global energy shipments. Trump has nevertheless indicated that U.S. negotiators could hold further discussions with Iran this week.
By 0803 GMT, Brent crude futures had risen $2.60, or 2.49%, to $106.92 a barrel, while U.S. West Texas Intermediate (WTI) crude was up $2.08, or 2.25%, at $94.49 a barrel, according to Reuters.
Later in the session, Brent extended its gains, rising as much as 3% to around $107.16 a barrel. Reuters reported that the benchmark subsequently traded around $107.30, while WTI reached approximately $95.22.
Trump Rejects Iran's Peace Proposal
The latest increase in oil prices came after Iran presented a proposal for peace negotiations at the United Nations General Assembly in New York last week.
Iran said the proposal had been transmitted to the United States through Qatari mediators. Trump rejected the proposal over the weekend but later said he expected U.S. negotiators to continue discussions with Iran during the week.
The disagreement has left the diplomatic process unresolved, with uncertainty over whether negotiations can produce an arrangement that would reduce military tensions and allow more consistent movement through the Strait of Hormuz.
Hamad Hussain, senior climate and commodities economist at Capital Economics, attributed the initial oil price jump to Trump's rejection of Iran's proposal.
He also noted that the oil market remained in deficit despite an improvement in flows through the Strait.
Strait of Hormuz Remains Central to the Oil Market
The Strait of Hormuz is particularly important because it provides a major maritime route for crude oil and petroleum products leaving the Persian Gulf.
Any prolonged disruption to the waterway can raise concerns about the availability and cost of energy supplies, particularly for major importing economies in Asia and other regions.
Although shipments through the strait have begun recovering, the market remains sensitive to developments involving the United States, Iran and other countries in the region.
Reuters reported that flows through the Strait of Hormuz were expected to reach about 7.4 million barrels per day in September, according to preliminary Kpler data.
The increase in shipments has helped ease some of the supply pressure that emerged during the conflict. However, traders remain concerned that renewed military escalation could disrupt those flows again.
Middle East Oil Exports Are Recovering
The latest price increase comes despite evidence that crude exports from major Middle Eastern producers have improved.
Preliminary Kpler data showed that crude oil exports from key Middle Eastern producers rose to 12.8 million barrels per day in September, the highest level since the war began in February.
Saudi Arabia and the United Arab Emirates were among the countries that increased exports during the month.
The recovery in exports means the physical oil market is not facing the same level of immediate supply disruption that investors feared earlier in the conflict.
However, oil prices remain elevated because traders are weighing current supply levels against the possibility of renewed disruption.
The situation demonstrates the distinction between actual supply losses and the risk premium built into oil prices when markets perceive a greater possibility of future disruption.
Houthi Attacks Add to Regional Risks
The wider regional security situation is also contributing to concerns in energy markets.
Yemen's Saudi-led coalition said it intercepted two ballistic missiles and two drones launched by the Iran-backed Houthis toward Saudi Arabia early Saturday.
The attacks add another layer of uncertainty because Saudi Arabia is one of the world's largest oil producers and an important participant in global energy markets.
Reuters reported that Saudi Arabia's East-West pipeline had also been affected by earlier attacks, forcing changes in the country's export logistics.
Saudi Arabia subsequently diverted some shipments from the Red Sea port of Yanbu to its eastern Ras Tanura port.
For oil traders, continued attacks across the region create uncertainty about whether existing export routes and infrastructure can operate normally.
Oil Had Fallen Last Week
Monday's rally followed a period of sharp declines in parts of the oil market.
Brent had gained only about 0.4% over the previous week, while WTI had fallen approximately 7.9%, according to Reuters, partly because of concerns that the United States could restrict diesel exports in an effort to address extremely high domestic diesel prices.
Those concerns have also become important for refiners and consumers because diesel is used extensively in transportation, agriculture, construction and industry.
A restriction on U.S. diesel exports could increase the amount of refined fuel available domestically while reducing supplies available to international markets.
ANZ analysts warned that such a restriction could tighten fuel supplies outside the United States, particularly in Europe.
Inflation Risks Remain
The movement in crude prices is also being closely watched because higher oil prices can feed into inflation.
When crude becomes more expensive, the effect can spread through gasoline, diesel, aviation fuel, transportation and other energy-intensive sectors.
Reuters reported that refined-product prices have already risen sharply during the conflict, with diesel prices reaching record levels in the United States.
The resulting inflation pressure could complicate decisions by central banks.
According to Reuters, markets on Monday were pricing in a significant possibility that the U.S. Federal Reserve could raise interest rates again at its October meeting.
This illustrates how developments in the Middle East can extend beyond the energy sector and influence financial markets, borrowing costs and economic expectations.
Markets Await the Next Round of Talks
The immediate direction of oil prices is likely to remain sensitive to developments in the U.S.-Iran diplomatic process.
A successful agreement that allows the Strait of Hormuz to operate normally could reduce the geopolitical premium currently incorporated into crude prices.
Conversely, further military escalation or another significant interruption to regional energy infrastructure could increase concerns about supply.
For now, the diplomatic process remains unresolved.
Trump has rejected the latest Iranian proposal while indicating that talks could continue. Iran, meanwhile, has maintained its position on the negotiations and the reopening of the strait.
The result has left oil traders balancing two opposing forces: recovering physical crude exports and the continuing risk of a renewed supply disruption.
That tension was reflected in Monday's trading, when Brent crude moved above $107 a barrel after initially rising by more than 2%.
The coming days of negotiations will therefore be closely watched by energy markets, governments and businesses that depend on stable global oil supplies.
