Oil Rebounds About 1% to 2% After U.S. Strikes Iran's Qeshm Island, a Day After a 7% Plunge

The U.S. military conducted limited strikes on Iran's Qeshm Island on Monday, which U.S. officials described as a defensive measure. CBS and CNN reported, citing three U.S. officials, that the strikes followed Iran's Islamic Revolutionary Guard Corps firing at an American aircraft, and The Wall Street Journal, which first reported the strikes, said the U.S. had carried out other limited strikes in recent weeks while keeping the campaign deliberately low-profile to avoid signaling plans for a major escalation.

Oil reversed part of Monday's slide. Both benchmarks fell more than 7% on Monday, with Brent settling at $104.77 a barrel, as diplomatic signals lifted hopes for an end to the war. On Tuesday, CNBC first showed Brent up 0.97% at $105.77 and WTI at $97.41, and later in the same report Brent up 1.75% at $106.60 and WTI at $98.10; Reuters had Brent up 1.3% at $106.13 by 1043 GMT. ING cautioned that it is probably too early to think escalation risks have passed.

The diplomatic messaging from Tehran was mixed. Foreign ministry spokesperson Esmaeil Baqaei said on Monday that "the ball is in the U.S. court" because Iran's demands had been stated clearly, and parliament speaker Mohammad Bagher Qalibaf used the same phrase, according to state media cited by Reuters. President Masoud Pezeshkian said on Monday, before the strikes were reported, that Iran would try to solve the problem through dialogue. On Tuesday, a senior Iranian official told Reuters the two sides were far from reaching a deal and that Tehran would not accept Washington's excessive demands.

What to watch: whether Iran retaliates, any resumption of broader U.S. military action after the midterms, which President Trump has floated, and the progress of Qatar-mediated talks, all of which have been moving oil by several percent a day.