Oil prices settled 5 percent higher on Monday after Iran and the United States exchanged demands for compensation, reducing the likelihood of a near-term agreement to reopen the Strait of Hormuz, the world's most important oil transit chokepoint.

Brent crude futures settled up $4.17, or 4.99 percent, at $87.72 a barrel. U.S. West Texas Intermediate crude futures closed $3.95 higher, or 5.05 percent, at $82.13. The percentage gains were the largest for both contracts since July 29.

Both benchmarks had fallen more than 7 percent the previous week on optimism that Iran and Oman were close to a deal that would result in the reopening of the strait, which carried roughly a fifth of the world's oil and liquefied natural gas before the Middle East conflict began in late February.

Iran stated that the U.S. must lift sanctions on Tehran and meet several other conditions before the vital waterway can be reopened. U.S. President Donald Trump, for his part, said Iran must pay compensation for "all of the people that they have killed and gravely wounded."

Iran said it was nearing a final agreement with Oman to define new shipping lanes through the strait but reiterated that the U.S. must satisfy additional demands, including compensation and an end to sanctions and military threats, before the strategic passage is reopened.

The two countries are not currently engaged in negotiations. Iranian Foreign Minister Abbas Araqchi said on Sunday that Tehran will not enter talks while Washington remains in breach of an interim deal signed in June.

"Crude futures (are) seeing gains in the early trade as the U.S./Iran peace deal looks to be delayed along with further strikes from Ukraine hitting Russian refineries and tankers in the Black Sea," said Dennis Kissler, senior vice president of trading at BOK Financial.

"With Iran making the added demands, most traders feel near term, tighter supplies are more probable for longer," Kissler added.

In a further threat to supply, the Iran-aligned Houthis said they had struck Saudi Aramco's Jazan refinery on Sunday. Saudi Aramco has postponed the restart of the 400,000-barrel-per-day refinery to August 30 following two Houthi attacks in recent weeks, according to an alert from industry monitor IIR seen by Reuters.

The latest attack occurred two days after Saudi Arabia signed a defence pact with Sunni Muslim allies Turkey and Pakistan in response to growing regional instability stemming from the U.S.-Israeli war with Iran. ADNOC, the state-owned oil company of the United Arab Emirates, said on Friday that 15 of its vessels had been attacked while transiting the Strait of Hormuz since the start of the conflict.

Meanwhile, Ukraine's military continued targeting Russian energy infrastructure. Ukrainian strikes hit the Taneco oil refinery in Tatarstan and the ZapSibNeftekhim petrochemical plant in Russia's Tyumen region. The simultaneous disruption of supply routes through the Strait of Hormuz, Saudi refining capacity, and Russian energy infrastructure has compounded concerns among traders about global availability of refined products and crude.

On the U.S. supply side, crude oil stocks in the U.S. Strategic Petroleum Reserve fell by approximately 6.1 million barrels to 298.7 million barrels last week — the lowest level since January 1983 — according to Department of Energy data. The depleted reserve limits Washington's capacity to release emergency supplies to offset any prolonged disruption flowing through the Strait of Hormuz.

Source: The Korea Times