Oil prices extended their rally on Tuesday, with Brent Crude consolidating around $110/b at three-week highs as US-Iran peace efforts remain stalled. The surge represents a significant escalation from Monday's gains, when crude prices had already surged around 3% to hit a two-week high. Brent futures had settled at $108.23 a barrel, rising $2.90 or 2.8%, while US West Texas Intermediate closed at $96.37, up $1.97 or 2.1%. The rally reflects growing market uncertainty about the potential resolution of the ongoing conflict, with the Middle East conflict now touching the two-month mark. Latest reports indicate that crude futures pushed up to three-week highs on Tuesday as stalled peace efforts continue to drive market volatility.
Iran has reportedly passed 'written messages' to Washington via Pakistan outlining its red lines in peace talks, including a proposal to reopen the Strait of Hormuz in exchange for Washington ending its blockade of Iranian ports. The plan would see Iran reopen the crucial waterway through which a fifth of global oil and LNG typically flows, while postponing more complex negotiations over its nuclear programme. However, Secretary of State Marco Rubio told Fox News that Iran's stance on the Strait of Hormuz did not meet US demands, stating that "if what they mean by opening the straits is, 'yes, the straits are open as long as you coordinate with Iran, get our permission or we'll blow you up and you pay us,' that's not opening the straits."
The oil price surge has created a mixed response across global markets, with stock markets going into reverse while oil prices extended gains. Tokyo's Nikkei 225 fell 1.0% to 59,917.46, while Hong Kong's Hang Seng Index dropped 1.0% to 25,679.78. Seoul rose again thanks to a resumption of the tech rally that has pushed the Kospi to a record high, though other major Asian markets including Shanghai, Sydney, Singapore, Taipei, Mumbai, Bangkok, and Manila were all in the red. The Bank of Japan sharply raised its inflation forecasts for the current year and halved its growth projections due to surging oil prices, while the Federal Reserve, European Central Bank and Bank of England are expected to follow suit amid growing inflation concerns.
Iran is rapidly running out of places to store its crude, raising the prospect it may be forced to cut output further, according to data analytics firm Kpler. As reported by Bloomberg, US Treasury Secretary Scott Bessent said in a social media post that the Iranian oil industry was 'starting to shut in production' due to the blockade. Market analyst Linh Tran from XS.com noted that futures markets are pricing in a prolonged supply tightening scenario, with geopolitical risks remaining elevated. IG analyst Tony Sycamore pointed out that Tehran could be more willing to strike a deal soon as its ageing storage facilities were expected to hit maximum capacity this week, adding that "if forced shut-ins follow, Tehran risks irreversible long-term damage to its reservoirs and a serious hit to future production and revenue streams."
