Oil rises nearly 2% as Iran tempers hopes of Hormuz reopening

"Although the strait is still essentially closed, oil is currently trading at $80 to $85 per barrel, reflecting hope for a solution in near time," SEB Research analysts said in a note.

Meanwhile, in a further threat to supply, the Iran-aligned Houthis said they had struck Saudi Aramco's Jazan refinery on Sunday.

The attack was two days after the kingdom signed a defence pact with Sunni Muslim allies Turkey and Pakistan in response to growing regional instability from the U.S.-Israeli war on Shi'ite Iran.

Separately, UAE oil company ADNOC said on Friday that 15 of its vessels had been attacked transiting the Strait of Hormuz since the beginning of the conflict.

"Any major progress towards restoring unrestricted shipping could exert downward pressure on oil prices, while a breakdown in negotiations or renewed supply disruptions could quickly revive the geopolitical risk premium," said Sugandha Sachdeva, founder of SS WealthStreet, a New Delhi-based research firm.

Oil prices jumped almost 2% on Monday after Iran insisted that the United States must satisfy several demands before the Strait of Hormuz can reopen.

Brent crude futures were up $1.40, or 1.7%, at $84.95 a barrel by 1218 GMT. U.S. West Texas Intermediate crude futures were up $1.33, or 1.7%, at $79.51.

Both benchmarks fell more than 7% last week on hopes that Iran and Oman were close to reaching a deal that would result in a reopening of the Strait of Hormuz, which carried a fifth of the world's oil and liquefied natural gas before the Middle East conflict that began at the end of February.

Iran said it was nearing a final pact with Oman to define new shipping lanes through the Strait of Hormuz but repeated that the U.S. must meet other conditions, including compensation and an end to sanctions and military threats before the strategic waterway is reopened.