Oil prices jumped 5% on Monday after a new exchange of compensation demands between Iran and the United States dimmed hopes for an early deal to reopen the Strait of Hormuz.
Iran demanded that Washington lift its sanctions on Tehran and satisfy a series of additional conditions before it would allow the critical shipping route to reopen. US President Donald Trump said Iran must pay compensation for all the people it had killed and seriously injured.
Brent crude futures closed up $4.17, or 4.99%, at $87.72 a barrel. US West Texas Intermediate crude rose $3.95, or 5.05%, to $82.13 a barrel. Both contracts posted their largest one-day percentage gain since July 29.
The previous week, both benchmarks had fallen more than 7% amid growing expectations that Iran and Oman were close to an agreement that could lead to the Strait reopening. Before the Middle East war began in late February, roughly one-fifth of the world's oil and liquefied natural gas passed through the waterway.
Tehran's conditions
Iran said it was close to finalizing an agreement with Oman on new shipping routes through the Strait, but repeated that the United States must first meet further demands. These include the payment of compensation, the lifting of sanctions and an end to military threats before the strategically vital waterway reopens.
Iran and the United States are not currently in talks. Iranian Foreign Minister Abbas Araghchi said on Sunday that Tehran would not begin negotiations while Washington continued to violate the interim agreement signed in June.
Dennis Kissler, senior vice president of trading at BOK Financial, said crude contracts were rising in early trading as the US-Iran peace deal appeared to be stalling, while new Ukrainian strikes targeted Russian refineries and tankers in the Black Sea. He said that with Iran adding new demands, most traders now considered it more likely that tight supply would persist for longer.
New threats to supply
An additional threat to global supply came from Saudi Arabia. The Iran-backed Houthi movement said it struck Saudi Aramco's refinery in Jazan on Sunday.
Saudi Aramco postponed the restart of the refinery, which has a capacity of 400,000 barrels a day, until August 30 following two Houthi attacks in recent weeks, according to an IIR update seen by Reuters. The latest attack came two days after Saudi Arabia, Turkey and Pakistan signed a defense agreement in response to growing regional instability caused by the war between the United States and Israel against Iran.
The United Arab Emirates' state oil company, ADNOC, said 15 of its vessels had come under attack while transiting the Strait of Hormuz since the conflict began.
Strikes on Russian energy infrastructure
Meanwhile, Ukraine's military continued its attacks on Russian energy infrastructure. Ukrainian strikes hit the Taneco refinery in Tatarstan and the ZapSibNeftekhim petrochemical plant in Russia's Tyumen region, adding another source of concern over the supply of energy products.
In the United States, crude stocks in the Strategic Petroleum Reserve fell by about 6.1 million barrels last week to 298.7 million barrels, according to Department of Energy data. That is the lowest level for US strategic reserves since January 1983, adding a further element of uncertainty to an already strained global oil market.
