Oil prices rise after fresh US strikes shatter hopes of imminent Iran peace deal

Oil prices rose again on Tuesday after US military strikes in southern Iran shattered hopes of an imminent peace deal.

Positive noises about peace talks coming from both the US and Iran had sent crude tumbling 7 per cent on Monday – one of the sharpest single-day drops in weeks.

But Brent crude climbed again by $1.40, or 1.5 per cent, to $97.56 a barrel on Tuesday morning after Washington struck missile launch sites and Iranian boats attempting to lay mines near the Strait of Hormuz overnight, casting a shadow over negotiations that briefly appeared close to a breakthrough.

West Texas Intermediate, the US oil benchmark, fetched $91.25, still 5.5 per cent below Friday's close. There was no settlement on Monday due to the US Memorial Day holiday.

Asian stocks showed a mixed picture in early trade, after the indexes were expected to go higher on hopes of Iran deal, with Tokyo and Shanghai instead down around 0.5 per cent.

Monday's plunge had come after Iran's top negotiator and foreign minister travelled to Doha for talks with Qatar's prime minister on a potential deal to end the three-month war. Both sides said they had made progress on a memorandum of understanding that would halt fighting and give negotiators 60 days to reach a final agreement.

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Nikkei reported, citing a Middle East diplomatic source, that under the deal Iran would clear mines from the strait within 30 days, after which vessels from all countries could navigate freely, with Tehran also ending transit fee collection.

"Traders are betting heavily that a breakthrough will finally free up the long-paralysed tankers stuck in and around the Strait of Hormuz," said Tim Waterer, chief market analyst at KCM Trade, in a note.

Those hopes did not last the night. US Central Command said its forces had struck missile launch sites and Iranian boats attempting to lay mines near the waterway, saying the action was designed "to protect our troops from threats posed by Iranian forces."

Iranian media reported explosions in Bandar Abbas and nearby coastal areas along the strait.

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It was not the first time a deal had appeared within reach only to fall apart. "We've routinely gotten close and then collapsed on the details multiple times over the past couple of months and Hormuz remains closed," Rory Johnston, founder of the Commodity Context newsletter, told Reuters before Tuesday’s strikes.

Tehran has effectively halted nearly all non-Iranian shipping into and out of the Gulf since the war began, choking off about a fifth of global oil and gas flows and driving prices up by 50 per cent or more.

Ship-tracking data showed three liquefied natural gas tankers had passed through the strait in recent days, heading to Pakistan, China and India, along with a supertanker carrying Iraqi crude to China after being stranded for nearly three months.

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Mr Trump on Monday repeated his demand that Iran hand over its enriched uranium to the US for destruction, underlining how far apart the two sides remain on the issues at the heart of the negotiations.

He also said negotiations with Iran were “proceeding nicely,” hinting that the US was continuing the talks despite the fresh strikes, but cautioned it could resume military action if discussions were to collapse.

“It will only be a Great Deal for all or, no Deal at all,” he wrote.

The International Energy Agency has warned that oil markets could enter a "red zone" this summer as global stocks deplete if the strait does not reopen ahead of the travel season. Israel added a further layer of uncertainty on Tuesday, signalling it may intensify strikes against Hezbollah in Lebanon.

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