Oil prices rose after falling more than 5% on Wednesday, as U.S. forces carried out fresh strikes in Iran, while Washington and Tehran remained at odds over how to reopen the Strait of Hormuz.
Brent crude rose to near $97 a barrel, while West Texas Intermediate crude was near $91.
US forces conducted airstrikes on a military site and struck other targets near the Strait of Hormuz, according to a US official. Separately, Kuwaiti air defenses announced they were intercepting missile and drone attacks.
President Donald Trump said on Wednesday that he was not satisfied with the talks, while the White House denied an Iranian report of a draft agreement that claimed Tehran and Oman would oversee the waterway. Trump added, The strait will be open to everyone, and that the United States would monitor it.
New strikes and a dispute over Hormuz
Crude oil is still heading towards its second weekly decline, fueled by optimism that the warring parties will succeed in reaching at least a temporary agreement, despite the challenges.
The sticking points in the negotiations include the country’s nuclear program and Iran’s desire to control Hormuz, which remains under a double blockade imposed by both Tehran and Washington.
Adding to the challenges, Trump said at a White House meeting that he would not agree to a bad deal, and insisted that the United States would not ease sanctions, a position that contradicts Tehran's demands to end the attacks and receive frozen funds.
The president also faces pressure from hardline Republicans to continue the war, which is now in its fourth month since it began at the end of February.
The U.S. Treasury Department also imposed sanctions on the Strait of Hormuz Authority, according to a statement it released. The department said the authority is leading an Iranian-controlled scheme that blatantly violates international law, highlighting Tehran's efforts to impose fees on ships transiting the strait.
Chris Weston, head of research at Pepperstone Group Ltd in Melbourne, said that while markets are pricing in the likelihood of a deal with a strong optimism, the possibility of parties walking away from the negotiating table remains a distinct risk.
In the United States, an industry group report warned of another decline in oil inventories. The American Petroleum Institute reported that nationwide crude stocks fell by 2.8 million barrels last week, including a drop at the Cushing, Oklahoma, hub.
Official data is scheduled to be released later on Thursday.
Oil inventories add a new layer of pressure
Joe DeLaura, global energy strategist at Rabobank, said the oil market is very reassured now, noting that the drawdown of strategic petroleum reserves, as well as the sharp decline in Chinese imports, are helping to absorb some of the supply loss caused by the war.
He added: “By mid-July, if China starts importing again when the drawdowns from strategic petroleum reserves end, we will be at a very sharp upward turning point for many refined products,” describing a potential price surge.
Failure to reach an agreement to end the conflict threatens to prolong the disruption to oil supplies, which has caused a sharp rise in bond yields since late February by reigniting inflation. Central banks, including the Federal Reserve, are expected to eventually raise interest rates in response.
