Oil prices extended strong gains in early Asian trade on Tuesday, driven by apprehension about prospects of a resolution between Iran and the US to end the prolonged West Asia conflict and reopen the waterway passage – the Strait of Hormuz.
At the time of reporting, global benchmark Brent was quoted around the $87 per barrel mark, while the US benchmark, West Texas Intermediate, was trading near the $82 per barrel level. Both the contracts advanced 5% overnight as US President Donald Trump demanded compensation from Tehran for all the damages incurred by Washington, saying the new demands would be raised in future negotiations as well.
USA demands compensation from Iran
The compensation demand came in after Iran repeated its demand for war damages amounting to $300 billion, which is a part of the 14-point memorandum of understanding both countries signed in June to develop a rehabilitation and economic fund for Tehran after the war.
“I am likewise demanding compensation from Iran for all of the people that they have killed and gravely wounded with their roadside bombs and many conflicts,” Trump said in a Truth Social post. “Additionally, compensation should be paid to the families of the hundreds of thousands of innocent protestors that Iran has killed over the last 50 years.”
“There appears to be a gulf, no pun intended, between the US and Iran over what any agreement would actually look like,” Reuters quoted Tim Waterer, chief market analyst at KCM Trade, as saying. He added, “As a result, some of the optimism that built up last week is being unwound, giving oil prices a decidedly bid tone.”
Supply concerns add to gains for crude prices
The Hormuz Strait currently stands largely closed, as only five vessels are transiting through the passage, significantly lower than its daily average of 14 that it had recovered after the signing of the MoU in June, Amrita Sen, Founder and Director of Market Intelligence of Energy Aspects, said in a Bloomberg interview.
“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,” Bart Melek, global head of commodity strategy at TD Securities, said to CNBC. “We continue to expect Brent to trade $10-15 above current levels.”
Before the beginning of the war, which started in late February, the chokepoint used to transit nearly one-fifth of global crude oil and liquefied natural gas supplie