Crude futures edged higher in midday trading on Tuesday as markets weighed signs of progress in talks aimed at easing tensions between the US and Iran against renewed attacks on commercial shipping in the Middle East.
Front-month West Texas Intermediate crude futures climbed by 1.3% to $83.18 per barrel, while Brent futures advanced by 1.2% to $88.80/bbl.
Gelber & Associates said that stalled US-Iran talks and Washington's tougher conditions initially supported prices, but later reports of renewed diplomatic progress took some of the geopolitical premium out of the market.
President Trump on Tuesday alleged that Iran is an unfair negotiator, while describing some of his current options in the conflict, "just bop along" and let Tehran fail economically or hit them "really, really hard," according to media reports.
Iranian Foreign Minister Abbas Araqchi, on the other hand, said that securing the Hormuz requires an end to US aggression, including the blockade of Iranian ports. The secretary of Iran's Supreme National Security Council also said the key chokepoint would remain closed unless the US meets Tehran's conditions.
Soojin Kim, research analyst at MUFG, said that Hormuz traffic remains severely constrained at about five vessels per day, keeping a significant portion of global energy flows at risk, as supply concerns have spread to the Red Sea amid Houthi attacks.
However, despite reported signs of progress in talks to reopen the Hormuz, the UK Maritime Trade Operations reported two new attacks on ships in the Gulf of Oman and the Red Sea, highlighting the widening threat to maritime trade.
Three crew members were killed in a suspected attack in the Bab el-Mandeb Strait between the Red Sea and the Indian Ocean, while a container ship was hit by a missile off the Pakistan coast, UKMTO said.
On the supply side, US Energy Secretary Chris Wright said that crude flows out of the Arabian Gulf have risen to about 15 million barrels per day as shipping through the Hormuz recovers with the help of the US military and Gulf allies.
The seven-day average for oil moving through the Strait of Hormuz has climbed to almost 9 million b/d, Wright said, while another 5 million to 7 million b/d are being exported through newly upgraded pipelines and facilities that bypass the strategic waterway.
The Energy Information Administration, in its August Short-Term Energy Outlook, projected that US crude inventories should remain below the 2021/25 five-year low through the end of 2026 as refiners maintain high runs and net imports stay low.
The agency said that US crude net imports fell below 1 million b/d in April and May as crude exports hit record highs while imports declined, putting pressure on domestic stocks.
US commercial crude inventories declined each week from April 17 through June 26 and fell by 25 million barrels in May, 15 million barrels in June, and 4 million barrels in July.
The EIA said that high refinery margins should support elevated US crude inputs through the end of 2026, with refinery inputs during the first seven months reaching their highest level since 2019.