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US Oil Update: Futures Rally on Fading Peace Hopes

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Oil futures gained on Monday after President Donald Trump's rejection of an Iranian peace proposal renewed fears of a prolonged shutdown at the Strait of Hormuz.

The Brent futures contract gained about 2% to $103.33 per barrel while West Texas Intermediate oil futures were up 1.6% to $96.89/bbl.

"Brent crude futures advanced as much as 3.5% to $104.80 a barrel, while WTI climbed to near $99 after Trump said Iran's response was totally unacceptable, prolonging the effective closure of the crucial Strait of Hormuz," Saxo Bank analysts said.

Analysts noted that the price spike signals a shift in market sentiment as traders abandon hope for a quick diplomatic fix in favor of a tighter global supply outlook.

The rally marks a definitive reversal from last week's performance, where benchmarks trended lower on hopes that a 14-point memorandum of understanding was imminent.

Investors are now looking toward a high-stakes summit between President Trump and Chinese President Xi Jinping as the next potential catalyst for de-escalation.

While market participants are banking on Beijing utilizing its economic leverage over Tehran to broker a deal, ING analysts cautioned that such mediation remains "easier said than done."

Until a breakthrough occurs, the market appears priced for a higher-for-longer risk premium as the 10-week conflict continues to strain global energy flows, analysts said.

"Our conclusion is that one way or another, the Strait reopens in June-anchored for simplicity on June 1-with the market requiring a clear, credible announcement, ratified and confirmed by both sides, such as a statement from the UN Security Council," J.P. Morgan analysts said.

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