Oil Gains as Supply Risks Persist

Oil rose to the highest level since just before a ceasefire deal between the US and Iran, as traders await Washington’s response to a proposal from Tehran to end the war and potentially reopen the Strait of Hormuz.

Brent crude closed above $111 a barrel while West Texas Intermediate settled up 3.7% at just under $100 a barrel. US President Donald Trump said in a social media post that Iran wants the US to remove its naval blockade of the crucial shipping route and reopen it "as soon as possible." The closure by both the US and Iran has choked off flows of crude, natural gas and oil products, driving up energy prices and raising concerns about inflation.

Earlier in the day, prices briefly pared gains after the United Arab Emirates announced a surprise decision to exit OPEC and its wider alliance, OPEC+, as of May 1. Traders took the move as a signal the country would be able to ramp up output freely once the Iran conflict is over.

"In the near term, paper markets will stay focused on Hormuz and the tightness in physical flows," said Salih Yilmaz, senior analyst at Bloomberg Intelligence. "Only once the waterway reopens — and depending on how quickly the UAE ramps up output — would I expect attention to shift back to fundamentals."

Iran has signaled it may be willing to accept an interim deal to reopen the strait in exchange for an end to the blockade. More complex negotiations over the country’s nuclear program would wait until later, and the Islamic Republic is insisting on keeping some control over shipping through Hormuz.

Mediators in Pakistan are expected to receive a revised proposal from Iran in the next few days to end the war, according to a CNN report, which cites sources close to the mediation process.

Washington also stepped up its economic pressure on Iran and parties connected to it on Tuesday, sanctioning 35 "entities and individuals that oversee Iran’s shadow banking architecture." The Trump administration also warned banks of sanctions exposure related to China’s teapot refineries that may be importing Iranian oil.

Meanwhile, the UAE’s departure from the OPEC+ alliance further fragments the group and could have major ripple effects on the global oil market — especially if major producers like Saudi Arabia and Russia also increase output, according to David Oxley, chief commodities economist at Capital Economics.

"Ultimately, this could contribute to lower oil prices but higher oil market volatility over the coming decades," he added.

Still, a relatively subdued reaction to the historic development — with Brent briefly paring around $2 of gains before recovering — likely reflects the extreme tightness in physical markets, as stalled peace efforts force investors to price in a prolonged closure of the Strait of Hormuz. Banks including Citigroup Inc. and Morgan Stanley once again raised their price forecasts this week in response to deepening global supply draws.

Prior to the announcement, oil was higher after US President Donald Trump convened a meeting to discuss Iran’s proposal to end the nine-week war, but maintained "red lines," including preventing Tehran from obtaining a nuclear weapon.

Two Iran-linked oil tankers that US forces interdicted near Sri Lanka last week as part of the blockade appear to have halted their westward course in the Indian Ocean and turned around. The American cordon on shipping to and from Iranian ports started on April 13 in an attempt to squeeze Tehran’s oil revenue, and has turned away dozens of vessels. US forces also boarded the M/V Blue Star III, a commercial ship, in the Arabian Sea earlier Tuesday before releasing the vessel.

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. 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.

US Energy Secretary Chris Wright downplayed Iran’s ability to handle a production shutdown, telling Bloomberg TV on Tuesday its oil storage capacity is limited and its aging fields could be damaged if forced to turn off the taps.

But US consumers are also beginning to feel the war’s impacts. Average retail gasoline prices rose to $4.18 a gallon on Monday, according to the American Automobile Association, the highest since the conflict began in February.

Oil Prices

• WTI for June delivery rose 3.7% to settle at $99.93 a barrel.
• Brent for June settlement rose 2.8% to settle at $111.26 a barrel.
  • The more-active July contract gained 2.66% to $104.40 a barrel.