AI generated image, used only for representational purposeOil prices inched higher on Tuesday as traders are now focused on supply demand and recovering shipments across the crucial Strait of Hormuz. Around 7 am, WTI crude was trading at $68.83 a barrel, up 0.41% while Brent crude rose 0.38% to $72.26 a barrel.However, the gains remained limited as traders continued to focus on increasing crude supplies and the outlook for demand.Earlier, a tanker was hit by a projectile in the Strait of Hormuz, raising fresh concerns over security in one of the world's busiest oil shipping routes. The United Kingdom Maritime Trade Operations (UKMTO) said the incident took place early on Tuesday near Limah, Oman. The tanker was travelling south through the Strait of Hormuz towards the Gulf of Oman when a projectile struck the port side of the vessel, causing it to catch fire. The UKMTO said there was no environmental impact from the strike and that an investigation was under way.No one immediately claimed responsibility for the attack. However, Iran is suspected of attacking at least two other vessels travelling on a route near Oman in recent days.The latest incident comes as investors continue to monitor discussions between the United States and Iran over the future of shipping through the Strait of Hormuz, while also watching the recovery in Gulf oil exports.Earlier on Monday, US President Donald Trump said the United States would either reach a deal with Iran or "finish the job," renewing his threat of military action as Tehran projected defiance following the funeral of former Supreme Leader Ayatollah Ali Khamenei.Even with tensions resurfacing in the region, the upside in oil prices was capped as the market looked beyond geopolitics and turned its attention to rising supplies.According to Reuters estimates, the United Arab Emirates pumped more than 3.8 million barrels of crude a day in June. That was its highest production level since April 2020 and above pre-Iran war levels after it left OPEC+ production quotas in May."We will be watching for early signs of demand response, particularly from China. The market has priced in a lot of the positive supply news, so the next leg in oil prices will depend on whether physical reality matches the optimistic headlines," Waterer added.Supply expectations also remained in focus after the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, agreed on Sunday to raise output targets by another 188,000 barrels a day from August, following similar increases in June and July.Adding to the supply picture, Saudi Arabia lowered the August official selling price of its flagship Arab Light crude for Asia to $1.50 a barrel below the Oman/Dubai average. A Saudi Aramco pricing statement released on Monday showed the price was cut by $11 from the previous month, the biggest reduction in more than two decades.