Brent crude futures were flat at $88 a barrel or 0.35%, while US West Texas Intermediate crude futures stood at $83.50, up 0.40% a barrel. Both benchmarks had jumped more than 5% on Monday, hitting their highest levels since July 31.
The rally came after US President Donald Trump responded to Iran's conditions for a peace deal by demanding compensation from Tehran for people killed in wars, attacks and protests. The demand is expected to make efforts to reopen the Strait of Hormuz more difficult. Trump later said the US was in control of the strait and had cleared the strategic oil waterway of Iranian mines.
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Supply concerns were also heightened by developments in Saudi Arabia. Saudi Aramco has pushed back the restart of its 400,000-barrel-per-day Jazan refinery to August 30 after the Houthis claimed responsibility for two attacks on the facility on Sunday.
Where are prices headed?
How long the supply disruption lasts will be crucial for the direction of oil prices. JPMorgan estimates that every additional month of disruption could add about $7 to $8 a barrel to Brent prices. If the disruption continues for three months, the bank expects average monthly Brent prices to reach around $114 a barrel.
Read more:Iran's Supreme Leader Khamenei fills 6 key military positions
Goldman Sachs has also warned that Brent could climb to $120 a barrel if shipping disruptions through the Strait of Hormuz, the world's most important oil transit route, persist.
However, Goldman's base case is that tensions in the Middle East will eventually ease. Under that scenario, it expects Brent to average $80 a barrel in the fourth quarter and $75 a barrel next year. The bank also said risks remain skewed to the upside because of the possibility of prolonged disruptions in the Strait of Hormuz and the Red Sea.
"The direction of our outlook is unchanged; the path and the timeline have shifted. We still expect oil to cool as we move into 2027, for three reasons: supply outside the conflict zone is expanding, with OPEC+ raising production targets, the UAE at record output and non-OPEC barrels responding to price," said Anindya Banerjee, Head of Commodity Research at Kotak Securities.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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