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Oil Advances as Hopes Fade for Strait of Hormuz Reopening

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Oil Advances as Hopes Fade for Strait of Hormuz Reopening

Oil prices were higher Tuesday amid growing uncertainty around the reopening of the Strait of Hormuz, the world's most important chokepoint for crude flows.

West Texas Intermediate crude oil was up 1.1% at $83.08 a barrel in afternoon trade, while Brent rose 1.3% to $88.86.

The Strait of Hormuz will stay closed until the US changes behavior and accepts Iran's conditions to end the conflict, including unfreezing Iranian funds overseas, Reuters reported Tuesday, citing Iran's Supreme National Security Council Secretary Mohsen Rezaei. "America must end the war, pay Iran's frozen assets, the war must end throughout the region, including in Lebanon and Gaza," Rezaei reportedly told the news agency.

Separately, Pakistani Defense Minister Khawaja Asif told Bloomberg News that things were "shaping up again in favor of a peace arrangement or a deal" between the US and Iran. "The signals in the last two three days are that we are close to some sort of an arrangement," Asif reportedly said.

Iran has reportedly laid out new terms for reopening the Hormuz strait, including demanding full compensation for war damages. On Monday, US President Donald Trump demanded compensation for those he claimed were killed and wounded by Iran's attacks.

"The tougher stance lowers chances of a near-term agreement and keeps markets wary, as Iran ties any Hormuz deal with Oman to a broader accord with the US and Trump opts for economic pressure over new strikes," Saxo Bank said in a note Tuesday.

A missile struck a commercial vessel owned by Saudi Arabia while transiting the Bab al-Mandeb Strait, CNN reported Tuesday, citing Yemeni officials and shipping sources. That strait connects the Red Sea to the Gulf of Aden and Arabian Sea. It is an alternative route to the Strait of Hormuz.

"Unresolved stumbling blocks suggest the negotiations to end the Iran war and open up the Strait of Hormuz will drag on, especially since there is still time before US midterm elections in early November," BMO said in a separate note Tuesday. "Thus, the roller coaster ride for many commodities will continue."

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