Oil prices rebound amid Middle East tensions

Oil prices rebounded on Tuesday, reversing earlier declines as escalating tensions in the Middle East overshadowed hopes for a lasting ceasefire. U.S. military actions and threats from Iran have injected fresh uncertainty into the global energy market.

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The market is digesting the idea of a deal that is being negotiated, in a context where supply has been severely compromised in recent months.

The benchmark Brent crude oil for July delivery approached $100 a barrel, settling at $99.58, marking a 3.58% increase from the previous close. The West Texas Intermediate (WTI) U.S. counterpart finished at $93.89. While these figures are lower than late last week, they represent a significant recovery from Monday's trading, which was impacted by a holiday in the United States.

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It is unlikely that prices will fall below $95 a barrel (for Brent) as long as the two sides do not reach an agreement, due to the insecurity that reigns in the strait.

Analysts suggest the market is factoring in ongoing negotiations while grappling with significantly compromised supply in recent months. Mark Malek of Siebert Financial noted that prices are unlikely to drop below $95 for Brent as long as insecurity persists in the Strait of Hormuz, a critical chokepoint for hydrocarbon exports from the Gulf. Gregory Brew of Eurasia Group anticipates that if the strait reopens, flows could recover 30% to 50% of their pre-war volume within a month.

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If the negotiations fail again, we will have to expect yet another surge in prices.

However, a failure in negotiations could lead to another price surge, according to analysts. Malek warned that a breakdown in talks would result in a worse situation than the current one, especially as global crude reserves, used to buffer crises, have dwindled since the conflict began on February 28.

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A failure at this point will not bring us back to square one. It will lead us to a worse situation.