Oil rises on renewed Middle East hostilities and stalled peace talks

Oil prices climbed after fresh hostilities in the Middle East and a stall in U.S.-Iran peace negotiations raised concerns about prolonged supply disruptions, lifting risk premiums across benchmarks.

According to Reuters reporting, Iran launched ballistic missiles toward neighbours Kuwait and Bahrain and U.S. forces conducted strikes on Iran’s Qeshm Island in response to the attempted attacks. At 0330 GMT Brent futures were trading around $96.81 a barrel and U.S. West Texas Intermediate (WTI) near $94.67, with both benchmarks having settled at one-week highs in the prior session. Market sources cited American Petroleum Institute (API) data showing a 6.8 million-barrel draw in U.S. crude stocks for the week to May 29.

The combination of tightening inventories and renewed regional conflict has pushed traders to reprice geopolitical risk into oil. The International Energy Agency (IEA) warned that commercial stocks could reach critical lows ahead of peak summer demand, a factor that has contributed to the recent upward momentum. Analysts note that even limited disruptions along key shipping routes can have outsized effects on physical balances and prompt short-term spikes in futures.

In a broader economic context, sustained supply constraints from the Middle East would add inflationary pressure globally and complicate central banks' task of balancing growth and price stability. Shipping through chokepoints such as the Strait of Hormuz has remained well below pre-conflict levels, limiting the market’s ability to quickly replace lost cargoes. Such structural frictions mean that any diplomatic setback can translate into tangible market tightening.

Looking ahead, market participants will be watching official U.S. inventory prints and diplomatic signals for direction. Strategists caution that volatility is likely to remain elevated while talks remain stalled and military incidents continue. ANZ’s senior commodity strategist noted challenges to reopening key transit routes due to mines and other hazards, suggesting that supply normalization would be gradual even if a diplomatic breakthrough occurs. Short-term trading will likely be driven by headlines and weekly inventory flows.