Oil prices surged during Monday’s Asian trading session after President Donald Trump rejected Iran’s latest response to a United States peace proposal, renewing concerns over ongoing supply disruptions as the Strait of Hormuz remained largely closed.
By 2:30 pm AEST (4:30 am GMT), Brent crude futures had risen US$4.47, or 4.4%, to US$105.76 a barrel, while U.S. West Texas Intermediate crude climbed US$4.70, or 4.9%, to $100.11 a barrel.
Despite Monday’s rally, both major oil benchmarks posted weekly declines of 6.4% last week as investors had previously grown optimistic that the conflict could soon ease, allowing crude shipments to resume through the strategically important Strait of Hormuz.
However, market sentiment shifted sharply after Trump described Iran’s latest response to U.S. negotiators as “unacceptable”, reducing hopes for a near-term diplomatic breakthrough.
Analysts at ING said in The Commodities Feed that oil markets remained highly reactive to developments surrounding Iran and the Persian Gulf.
"One would expect the market to become increasingly fatigued by the deluge of headlines and the back-and-forth. However, oil prices remain highly sensitive to noise around Iran, highlighting the significance of the ongoing supply disruptions in the Persian Gulf,” ING Think analysts noted.
Trump is scheduled to arrive in Beijing on Wednesday, where discussions with Chinese President Xi Jinping are expected to include the Iran conflict alongside broader geopolitical and trade issues, according to U.S. officials.
"While optimism for an imminent deal is fading, there remains a glimmer of hope that talks between Trump and Chinese President Xi later this week could yield positive results on Iran. The hope is that China can use its influence over Iran to push it closer towards a peace deal. Clearly, this is easier said than done," the analysts added.
Meanwhile, Saudi Aramco chief executive Amin Nasser warned that the global oil market had already suffered significant supply losses during the conflict.
Nasser said on Sunday that the world had lost about one billion barrels of oil over the past two months and cautioned that energy markets would require time to stabilise even if shipping flows eventually resumed.
Concerns over tanker security in the Strait of Hormuz also remained elevated.
According to Reuters, Kpler shipping data showed that two additional crude tankers exited the strait last week with tracking systems switched off in an effort to avoid potential Iranian attacks.
