Oil prices rise as Iran peace efforts hit setback

Oil prices climbed more than 2 percent on Monday after US President Donald Trump rejected an Iranian peace proposal aimed at ending the conflict and reopening the Strait of Hormuz.

Brent crude futures rose $2.60, or 2.49 percent, to $106.92 a barrel at 0803 GMT. US West Texas Intermediate (WTI) crude gained $2.08, or 2.25 percent, to $94.49 a barrel.

The rise followed Trump’s decision to reject Iran’s proposal, which was presented at the United Nations General Assembly in New York last week. Iran said the proposal had been passed to the US through Qatari mediators.

Trump said on Saturday that he had turned down the proposal. However, he told Axios on Sunday that US negotiators were expected to hold further talks this week.

Hamad Hussain, senior climate and commodities economist at Capital Economics, said the rejection appeared to have pushed oil prices higher.

He added that increased oil flows through the Strait of Hormuz had eased some pressure on prices, but the wider market remained in a supply deficit.

Tensions in the region also remained high. The Saudi-led coalition in Yemen said on Saturday that it had intercepted two ballistic missiles and two drones launched by the Iran-backed Houthis towards Saudi Arabia.

Despite the conflict, oil exports from major Middle Eastern producers recovered in September. Preliminary Kpler data showed exports reaching 12.8 million barrels per day, the highest level since the war began in February.

Shipments through the Strait of Hormuz were also expected to reach around 7.4 million barrels per day this month. Saudi Arabia increased shipments from its eastern Ras Tanura port after attacks damaged its East-West pipeline, reducing exports through the Red Sea port of Yanbu.

Brent gained 0.4 percent last week, while WTI fell more than 7 percent as markets weighed the possibility of a US ban on diesel exports.

The prospect of tighter diesel supplies has already pushed European low-sulphur gasoil prices sharply higher. Goldman Sachs said a US diesel export ban could also affect markets in Europe, Latin America and Asia.

The bank estimated that every week of a US diesel export ban could increase European wholesale diesel prices by about $3 a barrel, or just under 2 percent.