Oil prices settle up nearly 2% on new Iran sanctions, equities rally

By Shariq Khan

NEW YORK (Reuters) -Oil prices settled more than $1 per barrel higher on Tuesday as new U.S. sanctions against Iran and rising equity markets helped spark a recovery rally from the prior session's steep selloff.

Brent crude futures rose $1.18, or 1.8%, to settle at $67.44 per barrel. The U.S. West Texas Intermediate crude contract for May, which expired on Tuesday's settlement, gained $1.23, or 2%, to close at $64.32.

The more actively traded WTI June contract also gained 2% to settle at $63.47.

The U.S. on Tuesday issued fresh sanctions targeting an Iranian liquefied petroleum gas and crude oil shipping magnate and his corporate network.

Although talks between Washington and Tehran over Iran's nuclear program made progress over the weekend, failure to reach a deal could weigh heavily on Iran's oil exports amid tightening U.S. sanctions, said John Kilduff, partner at New York-based Again Capital.

"Either some nuclear deal is agreed or the U.S. tries to drive Iran's oil flows to zero, and it's increasingly looking like a zero-flow scenario," Kilduff said.

A surge in equity markets, indicative of higher risk appetite from investors, also aided oil prices, Mizuho analyst Robert Yawger said.

U.S. stocks rose on Tuesday as investors focused on corporate earnings, a day after President Donald Trump's mounting criticism of Federal Reserve Chair Jerome Powell led to a sharp selloff.

Brent and WTI benchmarks fell more than 2% on Monday due to the progress in U.S.-Iran talks and the equities selloff.

Despite Monday's recovery, investors remain concerned that U.S. tariffs could slash global economic activity, which will weigh on oil prices going forward.

The International Monetary Fund on Tuesday slashed its economic outlook for this year, citing U.S. tariffs at 100-year highs and rising trade tensions between Washington and Beijing.

"(U.S. tariffs) risk slowing global trade, disrupting supply chains, and increasing costs across major energy-consuming industries - all of which could significantly dampen oil demand," said Marcus McGregor, head of commodities research for asset management firm Conning.

U.S. Treasury Secretary Scott Bessent on Tuesday told investors that he believes trade tensions between the U.S. and China will de-escalate, but talks with Beijing have not started and will be a "slog".

Meanwhile, Russia's economy ministry cut its forecast for the average price of Brent crude in 2025 by nearly 17% from its projection in September, according to documents seen by Reuters.

U.S. crude oil stockpiles were expected to have fallen last week, a Reuters poll showed on Tuesday. [EIA/S]

(Reporting by Shariq Khan in New York; Additional reporting by Ahmad Ghaddar, Enes Tunagur, Yuka Obayashi and Emily ChowEditing by David Goodman, David Evans, Matthew Lewis and David Gregorio)