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US Oil Update: Crude Settles Higher as US-Iran Talks Stall, EIA Tightens Outlook

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Crude oil futures settled higher in after-hours trading on Tuesday after President Trump described ceasefire talks with Iran as being on "life support," while the Energy Information Administration warned of massive inventory draws as the Strait of Hormuz remains closed.

Front-month West Texas Intermediate crude futures rose by 4.06% to $102.05 per barrel, while Brent futures were up 3.02 % to $107.33/bbl.

Oil prices extended gains on Tuesday as markets reacted to renewed uncertainty around US-Iran negotiations and the broader Middle East conflict, Liquidity Energy strategists said.

Trump rejected Iran's counteroffer to a US proposal to end the Middle East conflict, as the US President dismissed Tehran's offer as "garbage" and warned that the ceasefire is on "life support."

Iranian authorities, in contrast, have called for an end to the war on all fronts, including Lebanon, where Israel is fighting Iran-backed Hezbollah militants. Tehran also demanded compensation for war damage and resumption of Iranian oil sales.

Iran's parliament speaker Mohammad-Bagher Ghalibaf posted on X on Tuesday, "There is no alternative but to accept the rights of the Iranian people as laid out in the 14-point proposal."

Separately, Ebrahim Rezaei, a spokesperson for the Iranian parliament's foreign policy and security committee, said the country could enrich uranium to up to 90% purity if the US-Israeli alliance launches another attack, according to Iranian media.

"Oil prices climbed for a second day as the global oil market continued to tighten amid limited prospects for a reopening of the Strait of Hormuz," Saxo Bank strategists said in a note.

Meanwhile, the continued closure of the Hormuz since late February has severely disrupted global flows of crude, fuels, and gas, with the International Energy Agency calling it the biggest supply shock in history.

Commercial shipping via the Hormuz has slowed to a trickle, with data analytics firm Kpler projecting that 79% of 53 vessels that entered the Persian Gulf before the outbreak of the conflict are unable to exit.

Daniel Hynes, senior commodity strategist at ANZ, said Trump is considering renewing Project Freedom, aimed at guiding vessels through the Strait.

On the supply front, disruptions to crude oil production in the Middle East have surged since April, with major Gulf producers collectively shutting in about 10.5 million barrels per day, according to the US Energy Information Administration's latest Short-Term Energy Outlook.

The EIA said Iraq, Saudi Arabia, Kuwait, the UAE, Qatar and Bahrain have all curtailed output amid the ongoing Middle East conflict, with the Hormuz assumed to remain effectively closed until late May.

The agency now projects global crude inventories to fall by an average of 8.5 million barrels per day in Q2, while prices will average $89 per barrel by Q4. The EIA now projects that the Hormuz will remain effectively closed through late May, a month longer than its April estimate.

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