Oil prices steady as markets await US sanctions on Iran

Oil prices remained stable in early trading on Tuesday, following a decline of more than 2% in the previous session, as investors awaited the impact of the United States expanding secondary sanctions on Iran and whether economic pressure would ease the risk of crude supply disruptions in the region.

Brent crude futures slipped 9 cents, or 0.1%, to $92.16 a barrel by 01:04 GMT, while US West Texas Intermediate crude edged up by one cent to $85.02 a barrel.

Both benchmarks had lost more than 2% on Monday, with US crude prices dropping to a one-week low, as investors took profits after a two-week rally.

Markets are closely watching the fallout from an announcement by the US Treasury Secretary regarding expanded sanctions on Iran, part of Washington's efforts to pressure Tehran and end the war between the two countries.

The Treasury Secretary said the US aims to cut off funding sources that support Iran, urging countries to halt trade with Tehran or risk exclusion from the dollar-based financial system.

However, the Treasury Secretary did not specify which countries would be targeted by the new measures or when they would take effect, noting that Washington wants to give nations time to comply with the new directives.

The economic escalation comes as the US has not ruled out military action against Iran, with the US Defense Secretary stating that Washington does not exclude the use of force.

Nonetheless, analysts say the US shift toward economic sanctions has eased some concerns about the risk of major oil supply disruptions in the Middle East due to military confrontation.

Tim Waterer, chief market analyst at KCM, said markets view economic pressure as a less risky path for oil supplies compared to military action, which explains the recent price decline rather than a sharp spike.

Despite the drop in oil prices, markets continue to factor in the possibility that Iran could disrupt maritime traffic, keeping a risk premium attached to crude prices.

These concerns grew after the UK Maritime Trade Operations reported that an oil tanker was hit by an unidentified projectile and disabled about 9 nautical miles (16.7 kilometers) northeast of Shisa in Oman.

Developments affecting navigation in the region keep the Strait of Hormuz in focus, as Iran insists on maintaining control over the waterway, through which shipments amounting to about 20% of global oil consumption passed before the war began.

Tehran has named 45 oil tankers it says violated its rules for transiting the strait, threatening action that could include confiscating their cargoes.

Supply disruptions from the US-Israeli war on Iran have prompted countries to draw on commercial and strategic reserves to meet oil needs.

In the United States, Energy Department data showed that crude oil inventories in the Strategic Petroleum Reserve fell by about 3.7 million barrels last week, reaching 289.7 million barrels.