Oil prices extended their recent gains on Tuesday as hopes for reopening the Strait of Hormuz continued to fade. The uncertainty has revived inflation concerns while increasing expectations for at least one US interest rate hike this year.
Crude prices have surged around 10 percent over the past week amid the growing uncertainty surrounding the crucial waterway.
The United States and Iran appear no closer to reaching an agreement over reopening the Strait of Hormuz.
Earlier optimism from the White House has also failed to produce a breakthrough in negotiations.
Hormuz Deadlock Keeps Oil Prices Under Pressure
The latest developments have added further pressure to an already tense situation in global oil markets.
US President Donald Trump said Monday that he would seek conflict compensation from Iran during potential peace negotiations.
He cited attacks and killings stretching back decades that he said were allegedly backed or carried out by Tehran.
Trump’s remarks came in response to Tehran’s demand for US war reparations before agreeing to resolve the crisis.
The latest exchange has reduced hopes for a quick agreement and raised concerns about continued disruption around the strategic waterway.
On Monday, both major crude contracts jumped around five percent, extending their gains into Tuesday.
“In the absence of any positive headlines on negotiations to reopen the strait, pressure on oil prices has been upward,” wrote Jason Wong at BNZ.
Oil Market Becomes a New Pressure Point
Stephen Innes, global strategist at Quintex Intel, said both sides were using oil pressure without launching another military strike.
“In effect, both sides are trying to weaponise the oil barrel without firing another shot. Washington is trying to choke Iran’s ability to get its crude out, while Tehran is squeezing the artery through which everybody else’s crude gets through.
“It is quite the game of chicken.”
The continuing deadlock has therefore placed the oil market at the centre of the wider dispute.
With hopes of a quick reopening fading, traders are increasingly focused on how long elevated crude prices could last.
Rising Oil Prices Revive Inflation Fears
Higher oil prices could add to inflationary pressure and complicate decisions facing central banks.
The prospect of crude prices remaining elevated has already revived concerns about inflation in the United States.
It has also increased market expectations for possible interest rate increases later this year.
A surprise loss of more than 20,000 jobs in the US economy last month had eased some concerns about another Federal Reserve hike.
However, stronger price pressures could still influence the central bank’s decisions.
Cleveland Fed President Beth Hammack addressed the issue during an interview with Yahoo Finance on Monday.
“I would say in general, one 25-basis-point move probably doesn’t do a whole lot for the economy.
“So it’s probably some number of (movements). But I don’t want to prejudge what that number is going to be.”
US Inflation Data in Focus
The US-Iran deadlock and rising crude prices come as traders await fresh consumer price data.
The inflation figures are due on Wednesday and could influence expectations surrounding the Federal Reserve’s next policy decision.
Consequently, markets are watching both developments around the Strait of Hormuz and the latest US economic indicators.
A prolonged rise in energy prices could increase pressure on consumer prices and complicate the outlook for monetary policy.
Asian Markets Show Mixed Performance
Asian equities were mixed on Tuesday following a subdued session on Wall Street.
Shanghai, Wellington, Taipei and Manila recorded declines during trading.
Meanwhile, Hong Kong, Sydney, Singapore and Seoul posted gains.
Tokyo’s market remained closed for a public holiday.
Key Market Figures
At around 0215 GMT, the Hang Seng Index was up 0.1 percent at 25,946.16. Shanghai’s Composite Index fell 0.5 percent to 3,948.19. Tokyo’s Nikkei 225 remained closed for the holiday.
West Texas Intermediate crude rose 0.3 percent to $82.40 per barrel. Brent North Sea crude also gained 0.3 percent to $87.97 per barrel.
The euro strengthened to $1.1546 from $1.1543 on Monday. The pound rose to $1.3512 against the dollar from $1.3508. The dollar slipped to 159.18 yen from 159.31 yen. The euro edged up to 85.46 pence against the pound from 85.45 pence.
In New York, the Dow Jones Industrial Average fell 0.1 percent to 53,975.98. Meanwhile, London’s FTSE 100 declined 0.4 percent to 10,862.50.
Oil Market Watches the Next Move
For now, the Strait of Hormuz remains a central concern for traders monitoring global energy markets. The absence of progress toward reopening the waterway has kept upward pressure on crude prices.
At the same time, higher oil prices are renewing concerns about inflation and future interest rate decisions.
Markets will now closely watch the latest US consumer price data alongside developments surrounding the US-Iran negotiations.
The direction of both developments could shape the next move in oil prices and broader financial markets.
