Oil prices stay in the green even after Trump calls off planned Tuesday attack on Iran

Oil prices remained elevated on Monday even after President Donald Trump called off plans to attack Iran for now.

International benchmark Brent crude futures rose more than 2% to close at $112.10 a barrel. U.S. West Texas Intermediate futures for June advanced about 3% to settle at $108.66 per barrel.

But prices eased in extended trading with Brent dipping back below $110, after Trump said he called off attacks on Iran scheduled for Tuesday at the request of U.S. Gulf Arab allies.

Trump said the leaders of Qatar, Saudi Arabia and the United Arab Emirates told him serious negotiations are underway with Iran that will result in a deal acceptable to the U.S.

However, Trump said he instructed the Pentagon "to be prepared to go forward with a full, large scale assault of Iran, on a moment's notice, in the event that an acceptable Deal is not reached."

More diplomatic back and forth

Earlier, a spokesman from the Iranian Foreign Ministry said talks were ongoing through Pakistan and that both Washington and Tehran had sent in their latest comments to a proposal from Iran. But a senior U.S. official told Axios that the proposal is not a meaningful improvement and is insufficient for a deal.

Over the weekend, Trump had warned that Iran "better get moving" on a deal, warning that a delay in reopening the Strait of Hormuz could lead to a resumption in armed conflict. The president's comments came as experts point to record low oil inventories.

Trump said a Truth Social post on Sunday that "For Iran, the Clock is Ticking, and they better get moving, FAST, or there won't be anything left of them," adding that "TIME IS OF THE ESSENCE!"

The U.S. and Iran agreed to a ceasefire in April but tensions remain high. Iran has kept the Hormuz waterway mostly closed, while the Trump administration continues to blockade Iranian ports. About 20% of the world's crude oil and liquefied natural gas supplies flowed through Hormuz prior to the war.

Oil inventories running low

The International Energy Agency, in its latest monthly update, cautioned that oil inventories globally are depleting at a record pace as Hormuz remains closed. "Rapidly shrinking buffers amid continued disruptions, may herald future price spikes ahead," the IEA said.

Inventories will near all-time lows of 7.6 billion barrels by end-May, if demand for oil remains the same month over month, according to a report by Swiss bank UBS last week.  

Oil supply concerns will intensify as inventories are depleted, said Jeff Currie, executive co-chairman at Abaxx Commodity Exchange.

"Anybody who gets their hands dirty in this business is telling you this is bad," Currie told CNBC's "Squawk Box Europe." "The Iranians want to inflict pain. It's not the price of oil that matters here — it's the availability of oil."

"There is no physical shortage of oil yet," Currie said. "We could hit that in Europe by the end of the month."