Oil prices edged up about 2% to a two-week high in volatile trade on Monday as worries over supply disruption from the Iran war offset a report the U.S. had agreed to waive sanctions on Iranian crude during talks.

Brent futures rose $2.15, or 2.0%, to $111.41 a barrel at 12:30 p.m. EDT (1630 GMT), while U.S. West Texas Intermediate (WTI) crude rose $1.98, or 1.9%, to $107.40.

After rising and falling more than $2 a barrel in volatile trading on Monday, Brent was on track for its highest close since May 4 and WTI was on track for its highest close since April 7.

Last week, both contracts jumped more than 7% as hopes dimmed for a peace deal to end the almost total closure of the Strait of Hormuz, through which about 20% of the world’s oil supply passes.

Fatih Birol, head of the International Energy Agency (IEA), said that commercial oil inventories were depleting rapidly with only a few weeks’ worth left due to the conflict and the closure of the Strait to shipping.

Birol, who is participating in the Group of Seven finance leaders meeting in Paris, told reporters that the release of strategic reserves had added 2.5 million barrels of oil per day to the market, but they were “not endless”.

“We feel that progress toward a diplomatic solution to the U.S./Iran war is little changed from around the middle of March when nearby WTI was about where it is now,” analysts at energy advisory firm Ritterbusch and Associates said in a note.

“Despite the continuation of the war … a re-opening of the Strait of Hormuz anytime soon remains highly uncertain. With each day that the Strait is closed, global oil markets will tighten further,” Ritterbusch said.

Iran’s semi-official news agency Tasnim said it was told by a source close to the negotiation team that unlike its previous texts, the Americans had accepted in the new text to waive Iran’s oil sanctions during the period of talks.

Peace mediator Pakistan has shared with the United States a revised proposal from Iran to end the war in the Middle East, a Pakistani source told Reuters on Monday, warning that the sides “don’t have much time” to narrow their differences.

Fragile Ceasefire

A fragile ceasefire is in place after the six weeks of war that followed U.S.-Israeli airstrikes on Iran on February 28, but talks mediated by Pakistan have stalled and U.S. President Donald Trump has said the truce is “on life support”.

“Unless there is a breakthrough in negotiations between the U.S. and Iran that reopens the Strait of Hormuz in the next few weeks, the assumptions we have made in our “baseline” scenario will no longer hold,” analytics firm Capital Economics said.

“This would involve downgrades to gross domestic product forecasts across all major economies, modest recessions in parts of Europe, peak inflation of 5-6% year over year in the UK and euro zone and interest rate hikes by all of the world’s largest central banks, including the Fed (U.S. Federal Reserve),” Capital Economics said in a note.

In China, growth lost momentum in April, with industrial output cooling and retail sales sinking to more than three-year lows as the world’s second-biggest economy wrestled with higher energy costs from the Iran war and persistently weak domestic demand.

China’s April crude oil throughput fell to its lowest since August 2022, official data showed, as the Iran war curbed refinery runs in the world’s second-largest oil consumer.

(Reporting by Scott DiSavino in New York, Robert Harvey and Shadia Nasralla in London, Mohi Narayan in New Delhi and Florence Tan in SingaporeEditing by David Goodman, Nick Zieminski, Alexander Smith and Andrew Heavens)