By Scott DiSavino
NEW YORK, May 26 (Reuters) – Brent crude futures climbed about 4% on Tuesday after the U.S. military carried out strikes in Iran, a setback to hopes over the weekend that the United States and Iran would reach an agreement to end the three-month war that would also re-open shipping through the crucial Strait of Hormuz.
U.S. futures were down, however, catching up to Monday’s selloff in Brent, when U.S. markets were closed.
Global benchmark Brent rose $3.44, or 3.6%, to settle at $99.58 a barrel, while U.S. West Texas Intermediate (WTI) crude fell $2.71, or 2.8%, to settle at $93.89.
On Monday, Brent closed at its lowest since April 20, losing 7% on renewed hopes for an agreement between the U.S. and Iran. U.S. crude was down by contrast as that market was closed Monday due to the U.S. Memorial Day holiday.
WTI closed at its lowest since April 22 on Tuesday, while U.S. gasoline futures fell 7% and U.S. diesel dropped 4% to their lowest closes in five weeks.
U.S. officials have on several occasions said they were close to a deal with Iran to end the conflict, but have not reached an agreement beyond a temporary cease-fire that has reduced attacks to a minimum.
On Tuesday, Iran said the U.S. had violated a ceasefire after it conducted what it called defensive strikes in southern Iran, while U.S. Secretary of State Marco Rubio said negotiating a deal to halt the conflict could “take a few days.”
Iran’s foreign ministry said U.S. strikes in Iran’s southern Hormozgan province, where Iranian media reported sounds of explosions early on Tuesday, represented a “gross violation” of a tenuous ceasefire in place for nearly seven weeks.
Both sides had previously indicated progress on a memorandum of understanding that could halt the war and restart shipping through the blockaded Strait of Hormuz, while giving negotiators 60 days to negotiate more complex issues, including Iran’s nuclear program.
“We are still waiting for more details on a potential deal,” said Giovanni Staunovo at UBS. “Meanwhile we see renewed tensions in the Middle East, while flows through the Strait remain restricted.”
The U.S. strikes happened as Iran’s top negotiator and its foreign minister were in Doha for talks with Qatar’s prime minister aimed at reaching an agreement.
TANKERS TRACKED PASSING THROUGH STRAIT
Iran has effectively halted nearly all non-Iranian shipping in and out of the Strait of Hormuz since the war began in late February, choking off about one-fifth of global oil and liquefied natural gas (LNG) flows.
However, ship-tracking data showed three LNG tankers passed through the Strait in recent days, bound for Pakistan, China and India, along with a supertanker carrying Iraqi crude to China that had been stranded for nearly three months.
United Kingdom Maritime Trade Operations, however, said on Tuesday that a tanker had reported an external explosion on the vessel’s port side, close to the waterline, 60 nautical miles off Oman’s capital, Muscat.
Pakistan plans to boost domestic storage for crude oil and refined products to increase its energy security, according to a government document shared with oil producers and some of the world’s leading trading firms.
U.S. consumer confidence slipped in May as worries about rising inflation linked to the war intensified and households’ views of the labor market remained pessimistic.
Inflation increases the cost of goods for consumers, and the increase in prices has central banks, like the U.S. Federal Reserve, worried they will have to tighten monetary policy, which would likely increase consumer borrowing costs and reduce economic growth.
(Reporting by Scott DiSavino in New York and Alex Lawler and Robert Harvey in London; Additional reporting by Pooja Menon and Emily Chow in Singapore; Editing by David Holmes and Emelia Sithole-Matarise)
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