Oil prices rally on Iran sanctions and market recovery

[WORLD] Oil prices climbed more than US$1 per barrel on Tuesday, bouncing back from a sharp drop the previous day as new U.S. sanctions against Iran and a recovery in global equity markets fueled a rally.

Brent crude futures rose US$1.18, or 1.8%, to settle at US$67.44 per barrel. The U.S. West Texas Intermediate (WTI) crude contract for May, which expired at settlement, advanced US$1.23, or 2%, to finish at US$64.32. The more actively traded June WTI contract also rose 2%, closing at US$63.47.

The rebound comes amid intensifying geopolitical friction, with Washington tightening pressure on Tehran just days after suggesting potential headway in nuclear negotiations. Analysts say the oil market remains acutely sensitive to supply disruptions in the Middle East, particularly as OPEC+ maintains output curbs amid uncertain demand recovery.

Brent and WTI had both slumped over 2% on Monday, following signs of diplomatic progress between the U.S. and Iran and a steep selloff in stock markets triggered by President Donald Trump's criticism of Federal Reserve Chair Jerome Powell.

The U.S. on Tuesday announced fresh sanctions targeting a prominent Iranian figure in liquefied petroleum gas and crude shipping, along with his corporate network.

Despite signs of dialogue, a breakdown in talks could further stifle Iran’s already diminished oil exports, warned John Kilduff, a partner at New York-based Again Capital.

“Either there’s a nuclear deal, or the U.S. pushes Iranian oil exports toward zero. And right now, it’s looking more like zero,” Kilduff said.

Iran’s crude exports have plunged from more than 2.5 million barrels per day (bpd) in 2018 to an estimated 500,000 bpd due to reimposed sanctions. Additional restrictions could tighten the global oil market even further, stoking supply concerns as economies reopen after the pandemic.

Meanwhile, global equity markets also rallied on Tuesday amid signs of a potential easing in U.S.-China trade tensions.

U.S. Treasury Secretary Scott Bessent expressed optimism that the trade standoff with China might de-escalate, though he acknowledged that formal negotiations have yet to begin and described the process as a “slog.”

While investors are cautiously hopeful about a trade resolution, persistent uncertainty continues to cloud the outlook for global energy demand. A prolonged impasse could derail the fragile recovery in oil consumption, especially in Asia, where China remains the world’s largest oil importer.

Washington’s trade disputes, including tariffs on nearly all major trading partners, have weighed heavily on oil prices in recent weeks amid fears of a broader economic slowdown that could erode demand.

The International Monetary Fund on Tuesday downgraded its global economic forecast, while finance ministers from around the world gathered in Washington to negotiate tariff relief with Trump administration officials.

“Tariffs threaten to slow global trade, disrupt supply chains, and drive up costs in key energy-consuming industries — all of which could dampen oil demand,” said Marcus McGregor, head of commodities research at Conning.

Looking ahead, OPEC+ is scheduled to meet next month to assess whether to further ease production cuts. While the group has already begun gradually increasing output, diverging views—particularly between Saudi Arabia and Russia—may complicate future decisions, leaving the market on edge.

In the U.S., crude inventories declined by nearly 4.6 million barrels last week, according to market sources citing American Petroleum Institute data.

The official inventory report from the U.S. Energy Information Administration is due Wednesday at 10:30 a.m. ET (1430 GMT). Analysts surveyed by Reuters expect, on average, a smaller drawdown of around 800,000 barrels.