Oil Prices Gain as Middle East Peace Prospects Fade

Global Oil Market Tensions Rise as Iran-U.S. Dispute Continues

New York, May 12 (Reuters) - Oil prices settled higher for the third consecutive session on Tuesday as concerns over prolonged supply disruptions continued to weigh on the global oil market. Brent crude futures gained $3.56, or 3.42%, to settle at $107.77 a barrel, while U.S. West Texas Intermediate futures closed up $4.11, or 4.19%, at $102.18.

The tensions between the U.S. and Iran over a proposal to end the war in the Middle East have raised concerns that supply disruptions will be prolonged. U.S. President Donald Trump said on Monday that ceasefire talks with Iran were on "life support," citing disagreements over Tehran's demands for a cessation of hostilities on all fronts, the removal of a U.S. naval blockade, the resumption of Iranian oil sales, and compensation for war damage.

The U.S. Energy Information Administration (EIA) has revised its forecast for the Strait of Hormuz, predicting that it will be effectively closed through late May, leading to larger losses of Middle Eastern oil and gas supplies than previously expected. The agency had earlier expected the waterway to be shut through late April.

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The disruptions linked to the near-closure of the Strait of Hormuz have prompted producers to curtail exports, with a Reuters survey showing OPEC oil output in April fell to its lowest level in more than two decades. The EIA estimates that 10.5 million barrels per day of output were lost during April across the Middle East due to the strait closure, limiting exports.

The prolonged loss of Middle Eastern supply is forcing countries around the world to burn through their oil and gas stockpiles. The EIA now expects global oil inventories to fall by about 2.6 million barrels per day this year, much more than its previous forecast of a 300,000 barrels per day decline. In the United States, crude stocks were estimated to have dropped by about 2.1 million barrels last week, according to an extended Reuters poll of analysts.

Market participants are also keeping a close eye on Trump's planned meeting with Chinese President Xi Jinping on Thursday and Friday after Washington imposed sanctions on three individuals and nine companies for facilitating Iranian oil shipments to China. Tariffs imposed during the U.S.-China trade war have halted most Chinese imports of U.S. oil and LNG, which were worth $8.4 billion in 2024, the year before Trump began his second term.

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