Oil prices were little changed on Tuesday as investors weighed the possibility of US President Donald Trump ending the Iran war against supply shocks from a prolonged closure of the Strait of Hormuz, a key artery for global oil flows.
Brent crude futures for May were up 18 cents, or 0.16%, to $112.96 per barrel at 0438 GMT after dropping 1% earlier in the session. The May contract expires on Tuesday and the more active June contract was at $107.10.
US West Texas Intermediate futures for May fell 25 cents, or 0.24%, to $102.63 a barrel after hitting their highest point since March 9 in early trading.
Analysts said the fall in prices is a temporary reaction to the idea of the war's end, but any meaningful change in prices would not materialise until flows through the Strait of Hormuz are completely reinstated.
Trump told aides he is willing to end the military campaign against Iran even if the Strait of Hormuz remains largely closed and leave its reopening for a later date, The Wall Street Journal reported on Monday, citing administration officials.
On Monday, Trump warned that the US would "obliterate" Iran's energy plants and oil wells if Tehran did not reopen the waterway.
Iran's effective closure of the Strait of Hormuz, which typically carries about a fifth of global oil supply and large numbers of liquefied natural gas tankers, has pushed Brent futures up 59% so far in March, their highest monthly gain ever, while WTI is up 58% this month, the most since May 2020.
"While diplomatic signals remain mixed, the ground reality suggests that uncertainty will persist," said Sugandha Sachdeva, founder of SS WealthStreet, a New Delhi-based research firm.
"Even in the event of de-escalation, restoring damaged infrastructure will take time, keeping supply tight."
Highlighting the threat to seaborne energy supplies from the war between Iran and the US and Israel, Kuwait Petroleum Corp on Tuesday said its fully loaded crude oil tanker Al Salmi, capable of carrying up to two million barrels, was struck by an alleged Iranian attack at a Dubai port. Officials also warned of potential oil spills in the area.
On Saturday, Yemen's Iran-aligned Houthi forces targeted Israel with missiles, raising fresh concerns about possible disruptions to the Bab el-Mandeb strait, the chokepoint linking the Red Sea and Gulf of Aden, a key route for ships moving between Asia and Europe via the Suez Canal.
Saudi crude exports have been rerouted through this passage, with volumes redirected from the Gulf to the Red Sea port of Yanbu reaching 4.658 million barrels per day last week, Kpler data showed, a sharp rise from an average of 770,000 bpd in January and February.
"With the oil market's remaining buffers gradually being consumed, the market's vulnerability to a prolonged closure of the strait means that we are moving closer to physical oil shortages across a wider geographic scope, and the upward momentum for oil prices is likely to strengthen further," said Lin Ye, a vice president for commodities markets and oil at Rystad Energy.
Meanwhile, in the US, crude oil stockpiles were expected to have fallen last week, along with distillate and gasoline inventories, a preliminary Reuters poll showed on Monday.
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