(Updates prices and adds UAE's Withdrawal from OPEC in the final two paragraphs.)
West Texas Intermediate (WTI) closed higher on Tuesday, with the U.S. benchmark price flirting with the US$100 per barrel for the first time in three weeks as hopes for an end to the war on Iran fade and the Strait of Hormuz remains closed.
WTI crude oil for June delivery closed up US$3.56 to settle at US$99.93 per barrel as it failed to hold the US$100 mark it topped during the session, while June Brent oil was last seen up US$2.58 to US$110.81.
Weekend talks expected to be held in Pakistan between Iran and the United States failed to take place, while a Monday proposal from Iran to reopen the Strait of Hormuz in return for lifting a U.S. blockade of its ports and deferring talks over its nuclear program was rejected by President Trump.
Iran closed the Strait of Hormuz after the United States and Israel launched attacks on the country on Feb. 28. The Strait is the chokepoint for 20% of daily global oil demand supplied by Persian Gulf nations and its closure has produced the largest-ever supply shock, pushing up oil prices by 49% since the start of the war.
"Oil extended its rally ... amid no signs of progress toward reopening the Strait of Hormuz, where US and Iranian blockades have reduced daily transits to near zero. Warnings over the severity of the global supply squeeze continue to intensify, with tightness in refined fuel markets already pushing diesel and jet fuel prices toward USD 200 per barrel," Saxo Bank noted.
The closure of the Strait has pushed up spot price for oil, as the Asian nations that rely on Gulf producers compete for available barrels. Rising prices have heightened inflation and raises the risk of a global recession as the lack of supply forces demand destruction and chokes off economic growth.
"Alarm bells will ring loudly if the SoH (Strait of Hormuz) doesn't reopen during May. Spot crude and product prices will trade higher and higher. And if a decent reopening doesn't take place before June/July, then the risk is significant for a real crisis where the world may be forced to reduce its oil consumption closer to the level of availability," Bjarne Schieldrop, chief analyst commodities at SEB Research, wrote.
Also on Tuesday, the United Arab Emirates, the No.3 OPEC producer and the No.7 global oil exporter, said it will withdraw from OPEC on May 1, freeing itself from the cartel's quota system that restricted its output well below its production capacity.
"We reaffirm our appreciation for the efforts of both OPEC and the OPEC+ alliance and wish them success. During our time in the organisation, we made significant contributions and even greater sacrifices for the benefit of all. However, the time has come to focus our efforts on what our national interest dictates and our commitment to our investors, customers, partners and global energy markets," the country's government said in a release.