Oil Prices Rebound After 7% Crash as US Strikes Iran's Qeshm Island, Brent Holds Around $105 a Barrel

Oil prices edged higher Tuesday, a day after their steepest drop in weeks. Reports of a U.S. strike on Iran's Qeshm Island renewed concern about energy supplies moving through the Strait of Hormuz.

Brent crude futures rose 48 cents, or 0.5%, to $105.25 a barrel by 0104 GMT. U.S. West Texas Intermediate crude also gained 47 cents to $96.93.

The rebound followed a sharp sell-off Monday. Brent fell 7.63%, or $8.66, to settle at $104.77 a barrel, which removed part of the war-risk premium that had pushed crude higher in recent weeks.

Diplomacy drove Monday's drop

Prices fell Monday on hopes for a negotiated end to the U.S.-Iran war. Reuters reported that Iranian negotiators had left talks in Qatar on Sunday and that a draft proposal was being circulated for a possible follow-up meeting. The official who described the talks did not say what the draft contained.

Brent had already fallen more than 4% to $108.61 in early trading, and WTI dropped below $100 to $99.62.

Tehran said Monday that communication with Washington about ending the war was continuing, although the Qatar-mediated talks ended without a breakthrough. Iranian President Masoud Pezeshkian said Supreme Leader Ayatollah Mojtaba Khamenei had given the government authority to pursue peace negotiations.

Iran has also set out its terms. Foreign Ministry spokesman Esmail Baghaei said no final agreement could begin and the Strait of Hormuz could not be reopened unless the U.S. naval blockade ends and Iran's demands are met. Iran said over the weekend that the waterway could reopen within two days if those conditions were accepted. That is faster than the one-week timeline it proposed in September, which President Donald Trump rejected.

Qeshm strike brings back supply worries

Prices recovered after The Wall Street Journal reported, citing U.S. officials, that the United States had struck Iran's Qeshm Island. Some officials described the strikes as defensive, aimed at preventing Iran from using the island to threaten commercial ships in the strait.

Tim Waterer, chief market analyst at KCM Trade, said the reports of new military activity had put some of the geopolitical risk premium back into prices, after traders had begun pricing in a possible diplomatic settlement.

Analysts at ING warned that prices could swing sharply in the coming days, since many major developments in the conflict have come over weekends. The market "may have to hold its breath until the end of the week," the bank's strategists said.

Traders are also watching Washington. Investors remain concerned that new U.S.-Israeli strikes on Iran could follow the U.S. midterm elections, which are being held Tuesday. Trump has said the U.S. will not launch new attacks until after the vote.

Volatile month for crude

The swings come after a volatile October. Brent ended the month at its highest level in six months on fears that the conflict could escalate after the elections. Last week, Brent briefly reached $117 a barrel after a tanker caught fire in the Strait of Hormuz.

The strait normally carries about one-fifth of the world's crude oil and natural gas supplies. Shipping traffic through it has fallen sharply since the conflict began in late February.

Banks raise forecasts as governments try to limit the damage

Major banks have raised their oil price outlooks. Goldman Sachs raised its December Brent forecast to $105, and UBS expects Brent to reach $110 by year-end because Gulf exports remain below prewar levels.

Governments have stepped in to limit the effect on consumers. Europe announced the release of 42 million barrels of oil from reserves, and the United States offered another 17 million barrels from its Strategic Petroleum Reserve. Japan said it will draw $7 billion from a government fund to subsidize gasoline prices.

The effects have reached other energy markets. European natural gas prices rose above 101 euros for the first time since 2022, and the war has added about $11 billion a month to the European Union's oil import bill.

Energy companies post large profits

Oil companies have reported strong earnings as prices climb. ExxonMobil's profit doubled to $15.4 billion, and Chevron's nearly tripled to $9.9 billion. BP's profit quadrupled to a record, and Shell's nearly doubled to $10.8 billion as refining margins hit record levels.

Producers outside the conflict zone are looking for other export routes. Iraq's oil exports through Turkey have risen to 500,000 barrels per day as shipments through the Gulf remain limited.

What comes next

For now, traders are weighing two possibilities: a diplomatic breakthrough that could reopen the strait, or renewed military escalation that could push prices back toward their October highs.

Markets will be watching the outcome of the U.S. midterm elections, any follow-up meeting on the draft peace proposal, and the movement of commercial ships through the strait. Analysts say even the threat of attacks on shipping can move prices, whether or not supplies are actually lost.