Osmond Chiaand
Mitchell Labiak,Business reporters
Global oil prices have fluctuated ahead of a deadline set by US President Donald Trump for Iran to open the key Strait of Hormuz shipping route.
The cost of benchmark Brent crude rose above $111 (£84) a barrel in early trade. It then fell back below $108 a barrel before climbing back to about $110.
On Monday, Trump threatened to take out Iran “in one night” if it failed to agree a deal with the US by 20:00 Washington DC time on Tuesday (00:00 GMT/01:00 BST Wednesday).
Oil and gas shipments from the Middle East have been severely disrupted as Tehran threatens to attack vessels trying to use the strait in retaliation for US and Israeli airstrikes since 28 February.
Speaking at the White House, Trump said that he believed “reasonable” leaders in Iran were negotiating in “good faith”, but that the outcome is still uncertain.
Iran has so far rejected proposals for a temporary ceasefire, demanding a permanent end to the war and the lifting of sanctions against the country.
The initial rise in prices on Tuesday suggests investors believe it may be harder than expected for the US to reach a deal due to Iran’s hardline stance and that the war could be drawn out, Ye Lin from research firm Rystad Energy said.
Meanwhile, traders are also trying to work out whether Trump actually wants a deal or if he is “just putting up a smokescreen” while preparing for a larger attack, she said.
Tineke Frikkee, senior fund manager at W1M, said that even if there is an agreement to end the conflict soon it will take a while for any benefits to be felt economically.
“Oil flows could start coming through the Strait of Hormuz a bit quicker, but they will take some time to reach their destination,” she told the BBC’s Today programme.
“For other commodities, like liquid natural gas, for example, facilities have been turned off, so it will take three to four months to get them back online.”
However, Frikkee said there are still many problems for oil supply because of the US-Israel war with Iran.
“The fact a ship can go through is great. But at what price? Insurance for a ship has gone up a lot, and lots of other countries are looking to have anything, so it kind of goes to the highest bidder,” she said.
The ongoing issues from the conflict prompted Jamie Dimon, chief executive of US investment bank giant JPMorgan, to warn that global interest rates could rise as the conflict is set to push up inflation.
Ahead of Tuesday’s deadline, the UK will host a meeting of allied military planners and partners to discuss measures to secure the Strait of Hormuz once the conflict is over.
Disruptions in the key shipping route has pushed up the price of energy around the world and raised concerns about higher inflation globally.
Around a fifth of the world’s oil and gas shipments usually pass through the narrow waterway.
Major economies in Asia, including Japan and South Korea, have been particularly affected by the disruptions as they are heavily reliant on energy from the Middle East.
While some ships have used the strait in recent weeks it has been at a much lower volume than before the conflict.
Trump has also urged countries to send warships to the region to ensure more vessels can safely pass through the waterway.