KEY POINTS
- Brent crude climbed 2.1% to $110.55 per barrel Tuesday while WTI rose 1.9% to $98.17, extending the rally as U.S.-Iran negotiations remain stalled.
- Vessel traffic through the Strait of Hormuz — the chokepoint for roughly 20% of global oil and gas supply — is still severely curtailed, keeping the geopolitical risk premium elevated.
- DBS Bank sees oil trading in a $100-to-$125 corridor if the conflict settles into a prolonged ceasefire limbo, establishing a new structural floor for energy prices.
Brent crude futures for June delivery rose $2.32, or 2.1%, to $110.55 a barrel Tuesday morning, while West Texas Intermediate climbed $1.80 to $98.17. That puts Brent within striking distance of the $115 intraday high reached three weeks ago, and WTI firmly above the psychological $95 level that had served as resistance through most of March.
The catalyst has not changed, and that is precisely the problem. U.S.-Iran peace negotiations collapsed last week following a failed face-to-face round, and there is no scheduled follow-up. The Strait of Hormuz — the narrow waterway between Oman and Iran through which roughly a fifth of global crude and liquefied natural gas supply normally transits — remains effectively shut to commercial traffic. Every day the strait stays closed adds to the cumulative supply deficit that tanker-tracking data has been flagging since February.
The New Price Floor
Analysts are abandoning the idea of a swift return to $80 oil. Suvro Sarkar, who leads DBS Bank's energy sector research, told clients Monday that the base case has shifted from a quick de-escalation to a prolonged ceasefire "limbo situation" in which crude trades between $100 and $125 per barrel. That range reflects enough supply rerouting through longer shipping lanes around the Cape of Good Hope to prevent a true shortage, but not enough spare capacity to fully offset the Hormuz shortfall.
OPEC+ members with spare capacity — primarily Saudi Arabia and the UAE — have increased output modestly but show no willingness to open the taps fully while the geopolitical situation remains fluid. That restraint, combined with the ongoing Hormuz disruption, has created a supply picture tighter than anything the market has seen since the immediate aftermath of Russia's invasion of Ukraine in early 2022.
Downstream Damage
The pain is spreading well beyond the futures pits. U.S. average retail gasoline prices are holding above $4.50 a gallon nationally, with several West Coast markets above $5.50. Diesel prices, critical for trucking and agriculture, have risen 28% year-over-year, feeding directly into producer price inflation and squeezing margins for consumer-facing industries. Airlines, which report fuel as their second-largest cost after labor, are already citing higher jet fuel as a headwind for second-quarter guidance — JetBlue and United both flagged the issue in recent conference calls.
For the Federal Reserve, the oil rally creates an uncomfortable policy dilemma. Core PCE inflation, which strips out energy, had been trending toward target. But headline CPI, which voters and consumers feel at the pump, is running hotter precisely because of crude's $30-per-barrel surge since January. Chair Powell will face pointed questions about this divergence at Wednesday's press conference.
What Traders Watch Next
The key level on Brent is $115. A decisive break above that resistance — likely triggered by a further deterioration in Hormuz transit data or a complete breakdown in diplomatic talks — opens the door to $125 and forces a broader repricing of inflation expectations across equity and bond markets. On the downside, any credible diplomatic progress or a surprise OPEC+ output increase could snap Brent back toward $100 quickly, given how crowded long positioning has become in crude futures.
For now, the drift is higher. Until ships move freely through the strait again, oil markets will price in a permanent risk premium, and every asset class from equities to currencies must adjust to a world where energy costs structurally more.
