-- Crude oil futures climbed in after-hours trading on Monday after the US Navy began enforcing a blockade of the Strait of Hormuz, though gains were tempered by President Trump's claim that Iran has reached out to resume peace negotiations.
Front-month West Texas Intermediate crude futures rose by 2.60% to $91.91 per barrel, while Brent futures climbed 3.05% to $98.05/bbl.
"The collapse of US Iran negotiations and emerging US plans to interdict vessels linked to Iranian toll payments have shifted the risk profile from physical disruption to regulatory and enforcement uncertainty," Kpler strategists said in a social media post Monday.
The US blockade of Iranian ports and a partial closure of the Strait of Hormuz took effect Monday at 10.00 ET, with the US Central Command saying it will not impede vessels transiting to and from non-Iranian ports.
"The blockade will be enforced impartially against vessels of all nations entering or departing Iranian ports and coastal areas, including all Iranian ports on the Arabian Gulf and Gulf of Oman," Centcom said Sunday.
Saxo Bank strategists said the disruption has reinforced concerns about supply, especially across middle distillates, as tight availability continues to underpin diesel and jet fuel markets.
Trump ordered the blockade of the strategic waterway on Sunday after weekend peace talks between the US and Iran broke down, as the Middle East conflict has resulted in the largest global energy disruption amid Iran's closure of the Hormuz.
However, Iran pushed back against Trump administration threats, saying the US's blockade of the Strait would be "an act of piracy," as it reiterated plans to permanently control the critical chokepoint even after the conflict, according to media reports.
Capping the gains, Trump claimed on Monday that Iran reached out to his administration over peace negotiations, as the two sides trade blame over the collapse of weekend talks in the Pakistani capital, Islamabad.
Trump said Monday that Iran wanted to make a deal, but did not provide details on who participated in the call.
Erik Meyersson, chief EM Strategist at SEB Research, said that without progress on the diplomatic front, Hormuz will remain effectively closed, which would push oil prices higher.
Meanwhile, crude production in the Arabian Gulf plunged in March due to the ongoing Middle East conflict, OPEC said in its monthly report on Monday.
Iraq took the biggest hit, with production dropping from 4.2 million barrels per day in February to 1.6 mmb/d in March, followed by Kuwait and the UAE, which registered declines over the month of 1.4 million b/d and 1.5 million b/d, respectively.
The latest OPEC data showed that Saudi Arabia's production dropped by 2.3 million b/d, from 10.1 million b/d to 7.8 million b/d.