Oil prices recovered on Tuesday after four consecutive sessions of losses, as traders balanced signs of a possible diplomatic breakthrough in the US-Iran conflict against continuing threats to crude supplies across the Middle East, according to a report by Bloomberg.
Brent crude moved back towards $102 a barrel after falling almost 8% over the previous four sessions. Investors were assessing the potential for talks involving US President Donald Trump and Iranian President Masoud Pezeshkian, as well as Trump’s planned meeting with Chinese President Xi Jinping later this week.
The diplomatic developments have added to expectations that some of the supply disruptions caused by the conflict could eventually ease. However, the prospect of a breakthrough remains uncertain, with Washington and Tehran still holding significantly different positions.
At the same time, physical supply risks remain elevated. A tanker was reportedly struck in the Strait of Hormuz on Monday, according to UK Maritime Trade Operations, while satellite observations indicated that Saudi Arabia’s oil loadings from within the Persian Gulf have increased. The data suggests the kingdom is shifting more exports back towards the waterway following the shutdown of a major cross-country pipeline.
Libya has also emerged as a source of supply disruption. Production at the country’s largest oil field, Sharara, has fallen by more than half after an armed group shut a pipeline supplying the Zawiya export terminal. The report cites unnamed people familiar with the situation as highlighting that output at the field is currently around 127,000 barrels a day.
Oil prices have climbed almost 70% this year as the conflict in the Middle East has disrupted shipments through the Strait of Hormuz, while the Russia-Ukraine war has damaged energy infrastructure. Refined products have experienced an even sharper increase, with US retail diesel prices recently exceeding $6.50 a gallon for the first time.
The conflict, which began in February after the US and Israel launched attacks on Iran, has continued to spread across the region. The UK has agreed to support Saudi Arabia in responding to attacks by Yemen’s Iran-backed Houthis, who have also threatened commercial shipping around the Red Sea and the Bab el-Mandeb chokepoint.
European Union foreign policy chief Kaja Kallas has separately urged member states to provide additional naval and air assets to protect shipping in the Red Sea. The EU’s Operation Aspides, which has been operating in the region since 2024, may therefore be expanded in response to the increased threat to maritime traffic.
The Trump administration has also proposed a $5bn reconstruction fund for infrastructure damaged during the conflict. The proposed Partnership for Allied Construction & Trust would be overseen by the US Development Finance Corporation and is intended to encourage investment and reconstruction across the region.
For macro and commodity-focused hedge funds, the competing forces of supply disruption and diplomatic progress are creating a market heavily dependent on geopolitical developments. Oil’s sharp rise this year has also become an important consideration for investors assessing the inflationary consequences of the conflict and its potential impact on monetary policy.
The energy price surge has already contributed to higher inflation, prompting the Federal Reserve to raise interest rates last week.
