Oil prices saw choppy trading on Monday after US President Donald Trump threatened to destroy critical infrastructure in Iran unless it allowed ships to cross the Strait of Hormuz.
In an expletive-laden social media post on Sunday, Trump said the US would attack power plants and bridges unless the crucial waterway is open by late Tuesday US time.
Brent crude rose above $110 (£83.38) a barrel before those gains eased after a report of US-Iran talks over a potential ceasefire.
Oil and gas shipments from the Middle East have been severely disrupted as Tehran threatens to attack vessels that try to use the strait in retaliation for US and Israeli airstrikes since 28 February.
News website Axios reported that the US, Iran and a group of regional mediators are discussing the terms of a potential 45-day ceasefire that could lead to a permanent end to the conflict, citing US, Israeli and regional sources.
A White House source told the BBC that this was “one of many ideas and [Trump] has not signed off on it. Operation Epic Fury continues.”
The source added that Trump will “speak more” at a press conference at 13:00 local time (18:00 BST).
In the hours following the Axios report, the global benchmark oil price fell from over $110 a barrel to around $107.
Oil prices will remain volatile and swing with each headline of the war’s escalation and easing, said Sushant Gupta from consultancy Wood Mackenzie.
The focus remains on whether energy shipments from the Gulf can resume to ease a supply shortage that has impacted countries around the world, he said.
Disruption to shipping in the narrow waterway, through which a fifth of the world’s energy shipments usually passes, has pushed up the price of energy around the world and raised concerns about higher inflation globally.
Oil prices rose above $100 a barrel last week after Trump intensified threats against Iran, warning that US airstrikes over the next few weeks would send the country “back to the Stone Ages”.
Iranian attacks on oil facilities in the Gulf continued over the weekend.
Tehran claimed responsibility on Sunday for a wave of strikes on petrochemical plants in Kuwait, Bahrain and the United Arab Emirates.
On Monday, the Iranian Revolutionary Guard Corps (IRGC) warned that its attacks against US economic interests would be intensified if civilian infrastructure in its country continues to be targeted.
