Oil rises as Middle East negotiations hit impasse

Brent crude futures edged up to $88.09 per barrel, the highest level since July 31

Oil prices rose on Tuesday as negotiations between Iran and the U.S. over a peace deal and the reopening of the Strait ​of Hormuz hit an impasse, while Asian shares drifted on protracted uncertainty over the international inflation outlook.

U.S. President Donald Trump responded with his own ‌demands on Monday to Iran’s conditions for a peace deal, calling for Iran to pay compensation for those killed in wars, attacks and protests, in a rhetorical escalation likely to complicate efforts to reopen the crucial waterway.

Brent crude futures edged up to $88.09 per barrel, the highest level since July 31, after the contract rallied roughly 5% on Monday.

We’re ​now in a bit of a Mexican standoff, if you’d like, in terms of who blinks first, said Tony Sycamore, a market analyst at IG.

This ​is going to be almost a war of attrition now, he said. You probably can see the oil market sitting around the $75 to $95 ⁠range.

The latest uptick in fuel costs raises the stakes for the U.S. July consumer price report due on Wednesday, ​at which expectations are for a monthly rise of 0.1% in the headline reading and 0.2% for the core measure.

Any upside surprise could rekindle bets of a U.S. central bank ​rate hike next month, with the odds currently a coin toss.

We think the risks are skewed towards a hot print, which would probably drive a rebound in rate expectations and, potentially, renewed worries about stagflation, said Jonas Goltermann, chief markets economist at Capital Economics.

Overall, our assessment remains that the U.S. economy is running a bit hotter than a ‘Goldilocks’ situation. That points to higher interest ​rates, Goltermann said.