Brent crude nears $90 as Hormuz closure dims deal hopes

Oil prices extended gains for a third session as US demands for compensation clouded any near-term reopening of the Strait of Hormuz, keeping global supply constrained.

Brent crude climbed toward $90 a barrel Tuesday as fresh US demands on Iran dimmed prospects for reopening the Strait of Hormuz, keeping global supply constrained and pushing WTI above $82.

"Given that the strait is still closed, global inventories have been reduced dramatically, and flows are nowhere near normal levels, we could see shorts cover aggressively," said Bart Melek, global head of commodity strategy at TD Securities. "We continue to expect Brent to trade $10-15 above current levels."

Brent futures for October traded at $89 a barrel, up 1.4 percent from the previous close of $87.72, while WTI for September rose 1.7 percent to $83.51. Both benchmarks surged about 5 percent overnight. Only five vessels are currently transiting the Strait of Hormuz, well below the daily average of 14 that traffic had recovered to after the memorandum of understanding signed in June, according to Amrita Sen, founder and director of market intelligence at Energy Aspects.

The impasse leaves roughly a fifth of global oil supply exposed to disruption, with US stock futures trading flat and Treasury yields climbing as investors priced in the geopolitical risk. Iran has said the strait will not reopen until Washington lifts its naval blockade of Iranian ports, even as Tehran and Oman continue talks over the route's future administration.

Trump's compensation demand complicates talks

In a Truth Social post, President Donald Trump demanded compensation from Iran for deaths linked to earlier conflicts, after Tehran reiterated its demand for more than $300 billion in war damages. Trump said he has instructed his representatives to put the new demands into any and all future negotiations, adding the point of compensation never arose in prior meetings. The $300 billion fund for Iran's rehabilitation and economic development is part of the 14-point MoU Trump himself signed in June on the sidelines of the G7 summit in France.

Speaking to reporters at the White House, Trump declined to detail next steps, responding "You'll find out" when asked what would follow the latest round of negotiations, which he had previously described as Iran's "last chance" before possible military action. Asked whether a "massive escalation" remained an option, Trump said the US had the capability to pursue such a course if necessary. "If there's damages to be paid, I think Iran should pay those damages," he said.

SPR draws and Libya attacks tighten supply

Prices also drew support from a continued decline in US strategic reserves. Strategic Petroleum Reserve inventories fell 6.1 million barrels last week to 298.7 million barrels, their lowest level since 1983, according to US Department of Energy data released Monday. The reserve held 105.3 million barrels of sweet crude and 193.4 million barrels of sour crude as of Aug. 7, following a draw of about 2.8 million barrels the prior week. The drawdowns are part of Washington's commitment to release 172 million barrels under a coordinated action by International Energy Agency member countries, part of a broader 400 million barrel release across participating nations.

Separately, repeated drone attacks on oil facilities in Libya added to supply concerns. A drone targeted an oil facility in the western city of Zawiya early Tuesday, the third such incident since Sunday, the National Oil Corporation said. The remotely operated drone fell near the main oil tank and pipeline network at a blending and packaging plant operated by the Zawiya Oil Refining Company. The NOC warned continued attacks could force it to declare force majeure and halt operations at the refinery, following an attack on a gasoline storage tank Monday that held an estimated 4.5 million liters and later collapsed. Libya's crude production averaged about 1.35 million barrels per day in July.

The last time the strait faced sustained closure, crude prices spiked sharply within weeks as inventories drained, and the current trajectory suggests a similar dynamic if talks stall. With global inventories already reduced dramatically and shipping flows far below normal, traders holding bearish positions face pressure to cover, which could push Brent $10-15 higher from current levels, per TD Securities. If Washington and Tehran reach a deal, prices could retreat quickly; if not, the market faces a prolonged period of elevated crude and its inflationary knock-on effects across transport, fuel and consumer costs.

This article is for informational purposes only and does not constitute investment advice.