Oil prices rebounded more than 3 percent on Monday as uncertainty over a diplomatic resolution to the US-Iran conflict renewed concerns about Middle East supply disruptions. Brent crude futures rose $3.98, or 3.82 percent, to $108.30 a barrel by 0959 GMT, while US West Texas Intermediate (WTI) gained $3.52, or 3.81 percent, to $95.93 a barrel. The rally followed US President Donald Trump’s rejection of an Iranian peace proposal aimed at resolving the conflict and reopening the Strait of Hormuz, a critical route for global oil shipments.
The Iranian peace proposal was announced last week at the United Nations General Assembly in New York, and transmitted to the United States through Qatari mediators. Trump said on Saturday that he had rejected the proposal but told Axios on Sunday that US negotiators were expected to hold further talks this week. Hamad Hussain, senior climate and commodities economist at Capital Economics, said the jump in oil prices appeared to be linked to Trump’s rejection of the proposal.
Despite the renewed geopolitical uncertainty, crude exports from major Middle East producers recovered in September, preliminary data from Kpler showed. Exports rose to 12.8 million barrels per day, the highest level since the conflict began in February, as Saudi Arabia and the United Arab Emirates increased shipments. Shipments through the Strait of Hormuz were also expected to reach about 7.4 million bpd this month, indicating a partial recovery in the critical shipping route.
Hussain said the increased flows through Hormuz had eased some upward pressure on prices, but the broader oil market remained undersupplied. “While greater flows through the Strait of Hormuz are easing some of the upward pressure on prices, the bigger picture is that the oil market remains in a deficit,” he said. This deficit, combined with potential disruptions to global fuel supplies, has analysts concerned about further price increases.
Further geopolitical risks remain after the Saudi-led coalition in Yemen said it intercepted two ballistic missiles and two drones launched by Iran-backed Houthi forces towards Saudi Arabia. This development has added to concerns about the stability of the region and potential impacts on global oil supplies. The situation remains volatile, with multiple factors influencing oil prices.
Oil markets are also being affected by concerns over global diesel supplies and a possible US ban on diesel exports. European low-sulphur gasoil’s premium to Brent crude futures reached a record of about $95 a barrel last week after Trump backed the idea of restricting US diesel exports to ease domestic fuel prices. This potential ban could have significant implications for global fuel markets.
Analysts at Goldman Sachs estimated that every week of a US diesel export ban could increase European wholesale diesel prices by about $3 a barrel, or just under 2 percent. The bank also noted that a ban could quickly tighten supplies in other regions as Europe and Latin America seek alternative cargoes. Meanwhile, Ukraine’s military has also struck Russian oil facilities in the Krasnodar region, adding another layer of geopolitical risk to the global energy market.
Key points
- Oil prices surged over 3% due to US President Donald Trump's rejection of an Iranian peace proposal.
- The oil market remains in deficit despite increased crude exports from Middle East producers.
- A potential US diesel export ban could further tighten global fuel supplies and put additional pressure on prices.
