Oil prices increased slightly on Tuesday following significant declines in the prior session, as apprehensions regarding supply risks in the Middle East reemerged amid diminishing expectations for a diplomatic resolution in the U.S.-Iran conflict that has impacted shipments. Front month Brent crude futures increased by $0.71, or 0.8%, reaching $84.50 a barrel following a decline of 7% on Monday, which marked their lowest level in three weeks. U.S. West Texas Intermediate crude increased by $0.61, or 0.7%, reaching $81 a barrel following a decline of over 5% in the prior session, which brought it to a near one-week low. Oil faced downward pressure following U.S. President Donald Trump’s announcement on Sunday regarding the postponement of new strikes on Iran, as discussions aimed at resolving the conflict and addressing disputes over the Strait of Hormuz are ongoing. The strategic waterway connects Gulf oil producers to global markets and, prior to the conflict, facilitated energy exports that accounted for approximately 20% of global consumption daily.

However, Iran countered those assertions on Monday. Foreign Ministry spokesman Esmail Baghaei stated that there are currently no negotiations taking place with the United States and that no meetings have been arranged. The dispute over the Strait of Hormuz persists as a focal point of the ongoing conflict. Washington asserts that the memorandum of understanding signed in June mandated Iran to ensure the waterway remains open, whereas Tehran contends that the agreement clearly upheld its jurisdiction over the passage. Shipping activity through the Strait of Hormuz between Iran and Oman has experienced a decline in pace following reports of attacks on vessels. The United Kingdom Maritime Trade Operations reported on Tuesday that it had received information regarding an incident occurring 20 nautical miles, or 37 km, northeast of Oman’s Al Khasab. This followed a cargo vessel’s transmission over VHF channel 16, indicating that it had been hit by an unidentified projectile.

The outlook for crude prices will largely hinge on the duration of the supply disruption. JPMorgan estimates that each additional month of disruption could elevate Brent prices by approximately $7 to $8 per barrel. If the disruption persists for three months, the bank anticipates the average monthly Brent price to rise to approximately $114 per barrel. Goldman Sachs has cautioned that Brent may reach $120 a barrel if shipping disruptions through the Strait of Hormuz, the preeminent oil transit route globally, persist. Nonetheless, the bank’s base case posits that tensions in the Middle East will ultimately subside.

Goldman Sachs anticipates that, under this assumption, Brent crude will average $80 per barrel in the fourth quarter and $75 per barrel in the following year. However, the bank indicated that the risks to its forecast remain skewed towards the upside due to the potential for ongoing 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.