The oil market has suddenly found another reason to worry.

Crude prices surged again on Thursday as hopes for a diplomatic breakthrough between the United States and Iran faded, while investors were also forced to consider a new complication involving U.S. diesel exports.

The result was a sharp reversal in sentiment.

Brent crude climbed above $105 a barrel after rising roughly 4% in the previous session, while U.S. West Texas Intermediate also pushed higher. At around 9:40 GMT, Brent was up $2.43, or 2.36%, at $105.51 a barrel, after touching $106.50 earlier in the session. WTI was up $1.74, or 1.89%, at $93.90.

Just days ago, traders had been watching signs of improving supply and possible diplomacy.

Now the market is once again pricing a significant geopolitical premium.

The immediate problem is that negotiations between Washington and Tehran have produced little concrete progress.

An Iranian official told Reuters that the two sides remain divided over how to end their conflict, although diplomacy must continue. Tehran is reviewing Washington’s response to Iranian peace proposals, which include demands related to the U.S. naval blockade of Iranian ports and reopening the Strait of Hormuz.

That last issue is particularly important for oil traders.

The Strait of Hormuz is one of the world's most strategically important energy corridors.

If shipments through the waterway are disrupted, the consequences can extend well beyond the countries directly involved in the conflict.

That is why even the possibility of prolonged restrictions can send crude futures sharply higher.

Oil prices do not need to fall physically short of demand today for traders to react.

The market prices future risk.

If investors believe fewer barrels could reach refiners in the coming weeks, they bid up futures prices immediately.

The latest move therefore reflects uncertainty rather than a confirmed global supply shortage.

And uncertainty is everywhere.

Iranian President Masoud Pezeshkian told the United Nations General Assembly that Tehran would not surrender to U.S. pressure, reinforcing the impression that the diplomatic gap remains substantial.

For traders, this creates a frustrating situation.

Every headline about potential negotiations can trigger a rally or selloff.

When markets hear that talks are progressing, the geopolitical premium can shrink.

When talks appear stuck, the premium returns.

That is exactly what happened this week.

Brent’s move above $105 is especially significant because oil prices have already climbed considerably as the conflict has disrupted expectations about regional energy flows.

The longer that uncertainty continues, the more difficult it becomes for traders, airlines, manufacturers and central banks to plan around energy costs.

Then another factor entered the market: diesel.

A report suggested the United States could impose a temporary ban on diesel exports, sparking further uncertainty across fuel markets.

A White House official subsequently denied that the administration was preparing a 90-day diesel export ban.

But even the denial did not completely remove the market’s concern because U.S. distillate inventories are already relatively tight. Reuters reported that U.S. distillate stockpiles, which include diesel and heating oil, fell by 428,000 barrels last week to 107.4 million barrels.

That is a crucial distinction between crude oil and refined fuels.

The world can have plenty of crude while still experiencing shortages of particular petroleum products.

Refineries must convert crude into gasoline, diesel, jet fuel and other products, and those markets can tighten independently depending on refinery utilization, seasonal demand and international trade flows.

Diesel is particularly important because it powers trucks, agricultural machinery, construction equipment and industrial transport.

If diesel supplies tighten, the impact can spread through the broader economy.

That is why reports of export restrictions can create immediate concern.

A U.S. ban could theoretically preserve more refined fuel within the American market, but analysts have warned that restricting exports could have unintended consequences for global supply and prices.

It could also reshape regional trade flows.

Fuel that would normally be exported from the United States might become unavailable to overseas buyers, forcing them to look elsewhere.

That would increase competition for available supplies.

Meanwhile, U.S. crude inventories are moving in the opposite direction.

The Energy Information Administration said crude stocks increased by 3 million barrels last week to 426.4 million barrels, significantly more than analysts had expected. A Reuters poll had pointed to a decline of about 641,000 barrels.

Under normal circumstances, that kind of inventory build might put downward pressure on crude.

But oil markets are currently being dominated by geopolitical risk.

This is a crucial lesson in understanding energy prices.

Supply-and-demand fundamentals matter, but when a major transportation route is threatened, risk can overwhelm ordinary inventory signals.

A barrel sitting safely in a U.S. storage tank cannot immediately replace a barrel that might be blocked from moving through a key international shipping route.

That is why Brent and WTI can respond differently.

Reuters quoted Priyanka Sachdeva of Phillip Nova as noting that Brent carries a larger geopolitical and sea-route premium because international crude is more directly exposed to Middle East and Hormuz disruptions, while WTI benefits from the relatively insulated nature of U.S. supply.

That difference is increasingly visible in the current market.

Brent is reacting more aggressively to geopolitical headlines because international supply chains remain vulnerable.

WTI, meanwhile, is still being supported by broader concerns but has a somewhat different exposure profile.

The market’s biggest unanswered question is what happens next in the negotiations.

A credible diplomatic breakthrough could quickly take some premium out of oil prices.

If Washington and Tehran reach an arrangement that improves shipping conditions through the Strait of Hormuz, traders could begin pricing a gradual normalization of global energy flows.

But an extended deadlock could have the opposite effect.

The longer the uncertainty continues, the more companies may adjust their inventories and supply contracts to account for possible disruption.

That can itself increase demand for physical barrels and refined products, particularly from major importers worried about future availability.

There is also a central-bank problem hidden inside the oil rally.

Higher crude prices can feed directly into headline inflation.

Transportation becomes more expensive.

Fuel costs rise.

Manufacturers may face higher operating expenses.

Businesses can pass some of those increases to consumers.

That is precisely the type of inflation pressure central banks would prefer to avoid when they are trying to bring prices under control.

The timing could hardly be more difficult.

The U.S. Treasury market is already reacting to stronger-than-expected economic activity and expectations for additional Federal Reserve tightening.

A renewed oil surge adds another layer to that inflation story.

That means an energy market move can quickly become a bond-market event.

And a bond-market event can become an equity-market event.

In other words, oil is no longer moving in isolation.

It is connected to inflation, interest rates, currencies and global growth.

That interconnectedness explains why Wednesday's roughly 4% increase was followed by another rise on Thursday rather than an immediate reversal.

Traders are struggling to decide whether the current geopolitical shock is temporary or whether the market is entering a period of prolonged disruption.

There are reasons for both interpretations.

Iran remains engaged in diplomacy and has said negotiations must continue.

U.S. officials have also indicated that there is still a diplomatic path.

At the same time, the sides remain far apart, and the Strait of Hormuz remains a critical uncertainty.

Until that changes, oil is likely to remain extremely sensitive to every new headline.

The market has already shown how quickly sentiment can swing.

Prices can fall when traders believe supply routes are stabilizing.

They can surge when talks stall.

That means the next major move may not come from an inventory report or even from OPEC.

It may come from a negotiating room thousands of miles away from the futures exchanges where crude is being priced.

For now, the message from the market is unmistakable.

Diplomacy has not yet delivered the certainty oil traders want.

And when the world's most important energy routes remain exposed to geopolitical risk, crude prices have plenty of room to remain volatile.