Global oil markets powered higher in early Monday trading, taking Brent crude prices to the highest levels since late May, as the U.S. and Iran remain firmly at odds over plans to end their months long war and reopen the Strait of Hormuz.
President Donald Trump rejected a proposal from Tehran over the weekend, telling reporters in Washington that "they want to make a deal to open the Hormuz Strait immediately because they're losing ?so badly," but indicated that talks will likely continue in the coming weeks.
However, The Wall Street Journal also reported that Trump has told aides he'll resume bombing Iranian targets following the November elections.
Iran, for its part, insisted on Sunday that reopening the strait, the world's most important energy conduit, would be "contingent" on the U.S. granting sanctions relief, unfreezing assets, and ending its current blockade.
"The path back to talks remains highly uncertain, with Trump saying Iran had overplayed its hand," Saxo Bank strategists said Monday. "This likely reflects the recent increase in oil flows through the Strait, none of which has come from Iran, further tightening the economic screws on Tehran."
The standoff, which looks to have erased hopes of a peace deal to end the seven-month conflict, stoked global crude and energy prices in early Monday dealing as traders priced in longer disruption times and refining bottlenecks heading into the start of the U.S. winter fuel season.
Brent crude futures contracts for September delivery, the global pricing benchmark, were last seen changing hands at $108.57 a barrel, up more than 4% from Friday's close and nearly 20% since the start of the month.
WTI futures, which are more tightly-linked to U.S. gasoline prices, jumped 4.1% to $96.27 a barrel, taking their September increase to around 11.5%.
Gas prices eased somewhat from last week's highs, but were still pegged at a national average of $4.48 a gallon by the AAA on Monday, a near 10% increase from a month ago.
Diesel fuel costs, meanwhile, held near all time highs at $6.45 a gallon, marking a year-on-year advance of more than 75%.
Trump told Fox News over the weekend that he's "looking very seriously" at banning diesel exports, even as major oil bosses, as well as Energy Secretary Chris Wright, have pushed back against the idea, arguing it would raise domestic gas prices.
The oil and gas gains have added upward pressure to inflation readings, and could take the consumer price index above 4% over the coming months. That's helped lift bets on a near term rate increase from the Federal Reserve, with some investors expecting a series of hikes over the next six months to cope with the sustained price increases.
The CME Group's FedWatch tool pegs the odds of an October rate increase at around 70%, with bets on a hike in December now trading at around 92%.
L. Thomas Block, Washington policy strategist at Fundstrat, says the sharp surge in diesel and gas prices is also having the biggest impact on polling heading into the November midterm elections.
"There are several close races in the usually Republican farm belt where diesel is core to the economy, fueling much of the equipment used by farmers," he said. "Polling is showing close Senate races in Iowa, Nebraska and Texas."