Oil steadies near one-week highs as US-Iran peace deal hopes dim

Oil prices held steady near their highest levels in over a week on Tuesday, dampened by diminishing prospects for a peace agreement between the United States and Iran. The potential reopening of the Strait of Hormuz, a critical oil transit route, appears less likely following President Donald Trump's demand that Iran pay compensation for damages incurred by the U.S.

Brent crude futures remained flat at $87.81 a barrel, while U.S. West Texas Intermediate crude futures were at $82.20 a barrel. Both benchmarks had surged over 5% on Monday, reaching their highest points since July 31. Trump's response to Iran's conditions for a peace deal, which included demands for compensation for war casualties, has introduced significant complications to reopening the Strait of Hormuz. He later asserted U.S. control over the strait and stated that Iranian mines had been cleared.

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There appears to be a gulf, no pun intended, between the U.S. and Iran over what any agreement would actually look like.

"There appears to be a gulf, no pun intended, between the U.S. and Iran over what any agreement would actually look like," noted Tim Waterer, chief market analyst at KCM Trade. "As a result, some of the optimism that built up last week is being unwound, giving oil prices a decidedly bid tone." Adding to market concerns, Saudi Aramco has delayed the restart of its 400,000-barrel-per-day Jazan refinery to August 30, following Houthi claims of two attacks on the facility on Sunday.

Analysts at Barclays highlighted the continued "chokehold risk" around the Strait of Hormuz and the Bab el-Mandeb strait. They reported that crude oil and refined product net exports through the Strait of Hormuz averaged 3 million barrels per day in the week ending August 7, a decrease from 4.4 million barrels per day the previous week. This suggests that energy flows are likely to remain constrained in the near term due to ongoing tensions and the threat of further incidents, which elevate insurance costs and necessitate longer shipping routes.

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As a result, some of the optimism that built up last week is being unwound, giving oil prices a decidedly bid tone.