-- Oil prices rallied Wednesday, with Brent approaching $120 per barrel after US President Donald Trump reportedly rejected an Iranian proposal to lift the naval blockade.
Brent crude was last up 7.2% at $119.25 per barrel, having traded as high as $119.45 earlier in the day. West Texas Intermediate rose 7% to $106.91.
Trump told Axios on Wednesday he will maintain the US naval blockade of Iranian ports until Tehran agrees to a nuclear deal. Iran wanted the Strait of Hormuz opened before the two sides could sit down to discuss uranium enrichment at a later stage.
In a social media post on Wednesday, Trump said Iran "better get smart soon."
A senior Iranian security source told state media Press TV that the US naval blockade will soon be met with "practical and unprecedented action."
The rhetoric comes amid stalled peace negotiations between Washington and Tehran, though their ceasefire agreement appears to be holding. A separate truce deal is in place between Israel and Lebanon.
Pakistani mediators expect a revised proposal from Iran by Friday, CNN reported.
"Crude oil has resumed its war-driven rally, with Brent rising almost non-stop since a brief mid-month tumble to ($86 per barrel), when hopes for a peace deal and a short-lived reopening of the Strait of Hormuz triggered a sharp but temporary correction," Saxo Bank Head of Commodity Strategy Ole Hansen said in a report Wednesday.
Besides the Iran war, markets are assessing the implication of the United Arab Emirates' decision to leave the Organization of the Petroleum Exporting Countries.
The move marks a "major strategic shift (for the UAE), freeing it from production quotas that for years limited its ability to fully utilize expanding capacity," Hansen said.
The UAE is set to increase oil production after walking away from oil cartel OPEC, ING Bank said in a report Wednesday.
"However, before this can be tapped, there must be a resolution in the Persian Gulf that allows for uninhibited energy flows through the Strait of Hormuz once again," ING said. "Therefore, in the short term, this development has little impact on the market. But in the medium to longer term, it means more supply for the market."