WTI crude rose Tuesday as hopes for a quick U.S.-Iran deal to reopen the Strait of Hormuz continued to fade. President Trump said Washington now controls the strait and suggested Tehran must pay compensation for the war, while analysts warn prices could jump much further if the deadlock drags into next week.
West Texas Intermediate futures were 1.78% higher in early trade at $83.58 a barrel on Tuesday, while Brent crude, the international benchmark, rose 1.81% to $89.25. The gains came as hopes of a deal to end the Middle East standoff appeared to fade further this week.
Trump comments harden the standoff
Oil prices moved higher after Trump said the U.S. now has control of the Strait of Hormuz, responding to Iranian demands for reparations by suggesting Tehran itself must pay the U.S. compensation for the war. Tehran, meanwhile, is adamant that Washington must meet several conditions before the strait can reopen, and Trump told Axios on Sunday that his administration was now downplaying the standoff, pointing to mounting economic pressure on Iran rather than fresh military strikes.
Brent crude had ended last week down more than 7% after Washington signaled an imminent agreement, but that deal has yet to materialize and prospects deteriorated over the weekend. Brent was closing in on $88 a barrel in early Tuesday trading, up from around $83 at the end of last week, though still well below last month's surge above $100 and May's peak above $110.
Analysts see room for a bigger jump
Jefferies economist Modupe Adegbembo told CNBC that market moves will not stay this calm if the standoff runs into next week. Capital Economics' Kieran Tompkins said a prolonged closure could push the market toward a tipping point around the start of Q4, when inventory drawdowns can no longer absorb the supply shock. Tompkins said that scenario would be consistent with Brent prices possibly reaching $120-140 a barrel, based on historical form.
Energy Aspects founder Amrita Sen struck a similarly bullish note, telling CNBC that "crude can't stay down forever." Chinese crude imports are recovering after a slump in May and are set to rise further in August, while continued Houthi strikes on Saudi infrastructure add further pressure on the supply side.
Bond markets track the same tension
The standoff is also rippling through bond markets. The 10-year Treasury yield rose 3 basis points to 4.7334% in early Tuesday trade, while the 30-year yield, which is more sensitive to geopolitical events, climbed more than 3 basis points to 5.2790%. Investors are also awaiting the core inflation print for July, due Wednesday, for further signals on the Fed's rate path.
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