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Oil prices have extended their recent gains as hopes of reopening the Strait of Hormuz fade, raising new inflation concerns and increasing expectations of further US interest rate hikes.
Brent crude futures fell 10 cents, or 0.11 percent, to $87.62 a barrel by 0405 GMT on Tuesday, while US West Texas Intermediate (WTI) crude fell five cents, or 0.06 percent, to $82.08.
Despite the slight pullback, crude prices have jumped about 10 percent over the past week as the United States and Iran remain locked in a dispute over the strategic waterway.
Both major crude benchmarks rose about five percent on Monday, extending gains into Tuesday.
The latest tensions followed United States (US) President Donald Trump’s announcement on Monday that he would seek compensation from Iran for losses linked to conflicts and attacks allegedly backed or carried out by Tehran.
Trump’s position came in response to Iran’s demand for US war reparations as a condition for resolving the crisis.
The developments have raised doubts over a quick agreement to reopen the Strait of Hormuz, a major route for global oil shipments.
Jason Wong of BNZ said oil prices were under upward pressure because there had been no positive developments in negotiations to reopen the strait.
Stephen Innes, global strategist at Quintex Intel, described the standoff as a situation where both sides were using oil pressure against each other.
“In effect, both sides are trying to weaponise the oil barrel without firing another shot,” Innes said.
He added: “It is quite the game of chicken.”
Higher oil prices have also revived concerns about inflation and increased expectations that the US Federal Reserve could raise interest rates.
Cleveland Federal Reserve President Beth Hammack said a single 25-basis-point rate move would probably have limited impact on the economy, while suggesting that more than one move could be needed.
“I would say in general, one 25-basis-point move probably doesn’t do a whole lot for the economy.”
“So it’s probably some number of (movements). But I don’t want to prejudge what that number is going to be,” Hammack told Yahoo Finance on Monday.
Markets are now awaiting US consumer price data due on Wednesday, which could influence the Federal Reserve’s next decision on interest rates.
Asian stocks traded mixed on Tuesday after a weak session on Wall Street, with markets in Shanghai, Wellington, Taipei and Manila falling, while Hong Kong, Sydney, Singapore and Seoul recorded gains.
Tokyo markets were closed Tuesday for the Mountain Day holiday.
