Supply recovery steps have eased the immediate risk premium, but the market remains cautious.

Oil prices rose on Tuesday, with investors focusing on easing geopolitical tensions in the Middle East and shifting their attention to supply increases and demand expectations. Traders' concern over lack of progress in peace talks between the United States and Iran overshadowed any potential impact from a slight improvement in shipping traffic through the Strait of Hormuz. Brent crude futures rose $1.02, or 1.42%, to $73.01 per barrel, while U.S. West Texas Intermediate crude rose 93 cents, or 1.36%, to $69.48 per barrel.

Analyst Ole Hansen of Saxo Bank said: "The agreement has not been signed yet, so any disruption could still happen, and any statements from either side could raise concerns, which supports prices and eases the recent intense focus on a market suffering from a growing supply surplus."

Iran's Foreign Minister announced on Tuesday that talks aimed at reaching a final agreement between Tehran and Washington will not be held if U.S. threats continue, following a threat by U.S. President Donald Trump to 'finish the job' unless a deal is reached.

Hansen added: "So, if any further escalation occurs, the $75 level would be the natural level to look at after the $80 level."

Tim Waterer, chief market analyst at KCM Trade, said: "Supply recovery steps have eased the immediate risk premium, but the market remains cautious about overconfidence in the stability of the current truce given the volatility of US-Iran relations."

He added: "We will monitor closely any early signs of demand response, especially from China. The market has already priced in a lot of positive supply news, so the next phase of oil price increases will depend on whether actual reality matches the optimistic headlines."

Investors are monitoring talks between the US and Iran and their implications for navigation through the Strait of Hormuz, which before the start of the Iran war at the end of last February transported a fifth of global daily oil and LNG supplies.

Axios reported, citing US officials, that Iran's Revolutionary Guard launched at least two missiles on Monday night at commercial ships transiting the Strait of Hormuz. The report said the commercial ships sustained heavy damage without casualties.

Shipping data showed that very large crude carriers owned by a Japanese company, carrying Saudi crude oil, were heading to the Strait of Hormuz on Tuesday to exit the Gulf, joining a fleet of ships that were previously stuck and left a day earlier. Despite the recent increase in shipping traffic in the strait, the recovery of oil flow is proceeding at a slower pace than expected, according to a note from ANZ Bank analysts.

They added: "The initial recovery in tanker traffic through the Strait of Hormuz has stalled, with transiting vessel numbers still very low and no indication of a sustainable recovery." Although the interim agreement between the US and Iran has reduced immediate geopolitical risks, shipping companies remain cautious, limiting the speed of return of crude oil exports to normal levels.

Meanwhile, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, agreed on Sunday to increase production targets by 188,000 barrels per day starting in August, in addition to similar increases for June and July. Saudi Arabia cut its official selling price for August for its flagship Arab Light crude to Asia to $1.50 per barrel below the Oman/Dubai average, down $11 from the previous month, the largest reduction in over two decades, according to a pricing statement from Saudi Aramco on Monday. Meanwhile, Gulf oil producers continue to face immense pressure to sell millions of barrels accumulated in tankers and storage facilities amid safety and navigation concerns in the Strait of Hormuz despite its partial reopening following the signing of the memorandum of understanding between the US and Iran on June 17.

UAE raised its crude oil production to over 3.8 million barrels per day in June, its highest since April 2020 and above pre-Iran war levels, after withdrawing from OPEC+ production quotas in May. A significant portion of this amount likely came from onshore and offshore storage as oilfield production gradually recovered.

The Kingdom, OPEC's de facto leader, is also increasing production. Its exports in June rose to the highest since the start of the war at 4.5 million bpd, while July shipments are expected to jump to 6.4 million bpd, less than one million bpd below pre-war levels, according to Kpler.

Both Iraq and Kuwait, which halted most of their production during the conflict, have resumed exports, each shipping about 500,000 bpd through the Strait of Hormuz in June. The recovery has been remarkably fast. Total exports through the Strait of Hormuz nearly quadrupled in June compared to May, reaching about 4.2 million bpd, according to Kpler. This figure rises to about 10.5 million bpd when adding volumes shipped via ports bypassing the Strait of Hormuz.