Oil rebounds from two-month lows as Iran tensions cloud peace prospects

Highlights

Brent rose 1.55%, while WTI gained 1.51%.
Iran rejected nuclear concessions and denied ongoing U.S. peace talks.
Tanker attacks and the Hormuz closure continue to threaten oil supplies.

January Brent crude futures rose 1.55% to $92.91 per barrel, while December West Texas Intermediate futures advanced 1.51% to $87.34, according to the latest market readings. The rebound followed a sharp decline Tuesday, when prices initially dropped more than $3 per barrel after Washington played down the need for further military action against Iran, Reuters reports.

Iran hardens its nuclear position as diplomatic uncertainty grows

Iranian officials have rejected suggestions that negotiations with Washington are underway, even as the U.S. administration continues exploring ways to end the nine-month conflict. Tehran has also ruled out allowing enriched nuclear material to leave the country, while Washington maintains that nuclear issues must form part of any initial agreement.

Iranian security official Mohsen Rezaei has said Tehran is awaiting an acceptable response to seven conditions for peace talks. Although the complete list remains undisclosed, Iranian officials have identified sanctions relief, an end to the U.S. naval blockade and a halt to regional hostilities among their principal demands.

Tehran has also insisted that the Strait of Hormuz will remain closed until its conditions are met. The disagreement has weakened expectations of a rapid diplomatic breakthrough, leaving traders uncertain about when normal oil shipments could resume through the strategically important waterway.

Tanker attacks complicate prospects for reopening Hormuz

Security conditions around the Strait of Hormuz remain unstable. Maritime monitoring data cited 37 attacks on ships in October, the highest monthly total since the war began. On Tuesday, British maritime authorities reported that a tanker had been struck northeast of Lima, Oman, while Iran's Revolutionary Guards separately reported that two tankers caught fire after encountering naval mines.

Even a diplomatic agreement would not necessarily restore shipping immediately. Mine clearance, elevated insurance premiums, and shipowners' willingness to return to the route could delay the recovery of oil flows. The continued threat to commercial vessels has therefore limited the impact of recent expectations that the conflict could end soon.

Supply disruptions keep oil markets under pressure

Oil prices remain well below their levels at the beginning of November, with Brent down approximately 21% and WTI losing 17% as investors increasingly anticipated a diplomatic settlement. However, the latest Iranian statements have renewed concerns that the disruption could last longer than expected.

Supply developments outside the Middle East are also attracting attention. U.S. crude inventories reportedly increased by 9 million barrels last week, according to preliminary industry data, while renewed Ukrainian drone attacks have reduced Russian refining capacity by approximately 30% since late October. A separate drone strike caused a fire at Russia's Ust-Luga port.

The competing pressures of rising inventories and geopolitical supply risks leave oil prices particularly sensitive to developments in Iran. Without progress on nuclear negotiations and maritime security, the recovery in Brent and WTI could continue despite broader expectations of an eventual ceasefire.

Earlier, we reported that Iran-linked vessels raise risks for Gulf subsea cable infrastructure.

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