The major crude oil grades soared by over 3 per cent on Tuesday as differences between the United States and Iran over a proposal to end the war in the Middle East raised fresh concerns.
Brent crude futures gained $3.56 or 3.42 per cent to trade at $107.77 per barrel, and the US West Texas Intermediate (WTI) crude futures increased by $4.11 or 4.19 per cent to $102.18 a barrel.
The fact that the US and Iran cannot come to unifying terms over a proposal to end the war have spurred concerns that supply disruptions could upend the global oil market are likely to be prolonged.
US President Donald Trump said on Monday that ceasefire talks with Iran were on “life support,” pointing to disagreements over Iran’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.
The US Energy Information Administration (EIA) on Tuesday said it now assumes the strait will be effectively closed through late May, leading to much larger losses of Middle Eastern oil and gas supplies than its prior forecasts.
The agency had earlier expected the waterway would be shut through late April, since it was closed in early March.
It said 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 estimates 10.5 million barrels per day of output were lost during April across the Middle East due to the Strait closure, limiting exports.
Prolonged loss of Middle Eastern supply is forcing countries around the world to burn through their oil and gas stockpiles. The EIA now expects global oil inventories to fall about 2.6 million barrels per day this year, much more than its previous forecast of a 300,000 barrels per day decline.
Already, oil output from the Organisation of the Petroleum Exporting Countries (OPEC) in April fell to its lowest level in more than two decades.
The US President is bound to meet his Chinese counterpart, President Xi Jinping, days after the US imposed sanctions on three individuals and nine companies for facilitating Iranian oil shipments to China.