Oil prices hit two-week high as Iran talks stall and Strait of Hormuz shipments lag

Oil prices climbed about 3% to a two-week high on Monday as peace talks between the U.S. and Iran stalled and shipments through the Strait of Hormuz remained limited, keeping global oil supplies tight.

Brent futures LCOc1 rose $2.90, or 2.8%, to settle at $108.23 a barrel, while U.S. West Texas Intermediate crude CLc1 rose $1.97, or 2.1%, to settle at $96.37.

That put Brent up for a sixth day in a row for the first time since March 2025 and at its highest close since April 7. WTI closed at its highest since April 13.

"Brent blowing out to a double-digit plus premium to WTI ... should attract customers to the U.S. Gulf of Mexico and possibly drive U.S. crude oil exports to (a) new all-time record," Bob Yawger, director of energy futures at Mizuho, said in a note.

U.S. President Donald Trump discussed a new Iranian proposal on resolving the war with Tehran with his top national security aides, with the conflict currently in a stalemate and energy supplies from the region reduced.

"The diplomatic stand-off means that every day 10-13 million barrels of oil fail to get to the international market, worsening an already tight oil balance. Therefore, there is only one direction for oil prices to go," said PVM Oil Associates analyst Tamas Varga.

At least seven ships - mainly dry bulk vessels - have crossed the Strait of Hormuz in the past 24 hours, in line with muted activity in recent days. That represents a fraction of the average 140 daily passages before the Iran war began on February 28, when around 20% of global oil supplies passed through the strait.

In addition, six tankers loaded with Iranian oil have been forced back to Iran by the U.S. blockade in recent days.

Russian President Vladimir Putin praised the Iranian people for battling to stay independent in the face of U.S. and Israeli pressure and said Moscow would do all it could to help Tehran.

INFLATION WORRIES

The European Central Bank meets on Thursday, with an Iran war ceasefire easing the pressure on it for an immediate interest rate hike.

But with the status of peace talks unclear and no sign of the Strait of Hormuz reopening soon, traders still anticipate high oil prices will boost inflation and force the bank to hike interest rates later this year.

Central banks like the ECB use interest rates to keep inflation in check. Higher interest rates increase consumer borrowing costs, which can reduce economic growth and oil demand.

Goldman Sachs raised its oil price forecasts for the fourth quarter to $90 a barrel for Brent and $83 for WTI, citing reduced output from the Middle East.

"The economic risks are larger than our crude base case alone suggests because of the net upside risks to oil prices, unusually high refined product prices, products shortages risks and the unprecedented scale of the shock," Goldman Sachs analysts led by Daan Struyven said in a note on Sunday.

U.S. gasoline futures RBc1 closed at their highest since July 2022 for a fourth day in a row on Monday. The gasoline crack spread RBc1-CLc1, which measures refining profit margins, rose to its highest since July 2022 on Friday.

Elsewhere in the Middle East, the ceasefire between Israel and Lebanon was also on shaky ground.

The Israeli military began carrying out strikes in eastern Lebanon on Monday, expanding the scope of its bombing campaign during a ceasefire that has failed to fully halt hostilities with the Iran-backed Lebanese armed group Hezbollah.

-Scott DiSavino and Seher Dareen/Reuters