Oil prices experienced a notable uptick in Asian trading on Thursday, rising over 1.5% amid growing fears of a potential U.S. military strike on Iran, which could significantly disrupt oil supply from the region. This upward trend continued into Friday, when oil prices surged by more than 2% as traders remained vigilant about possible supply disruptions linked to ongoing nuclear negotiations between the United States and Iran.
Brent crude futures increased by $1.73, or 2.45%, reaching $72.48 a barrel, while U.S. West Texas Intermediate crude gained $1.81, or 2.78%, to settle at $67.02. The volatility in oil prices reflects the prevailing uncertainty, with analysts like Tamas Varga from brokerage PVM stating, “Fear is pushing prices higher today,” indicating that the dynamics are closely tied to the outcome of Iranian nuclear discussions and any hinted military actions from the U.S.
Indirect talks between the U.S. and Iran took place in Geneva on Thursday, spurred by U.S. President Donald Trump’s directive for a military buildup in the region. During the negotiations, oil prices briefly jumped as reports surfaced about stagnation in talks due to U.S. demands for Iran to cease uranium enrichment. However, prices later softened when it was reported that progress had been made in the discussions, with future technical discussions scheduled in Vienna next week.
Despite this positive development, analysts caution against complacency. DBS analyst Suvro Sarkar remarked that while the latest talks bring a glimmer of hope for a peaceful resolution, the specter of military action remains a viable scenario. Trump emphasized on February 19 that a deal regarding Iran’s nuclear program was essential within a tight timeframe of 10 to 15 days, or dire consequences would follow.
Increasing geopolitical tensions have led to added risk premiums in oil prices, estimated between $8 to $10 a barrel, largely due to concerns that a conflict could disrupt the vital Strait of Hormuz, through which roughly 20% of global oil supply navigates. In anticipation of a possible military strike, the United Arab Emirates has committed to exporting additional amounts of its flagship Murban crude in April, complemented by reports suggesting a rise in oil production.
On the horizon, Saudi Arabia might also elevate its crude prices to Asian markets in April for the first time in five months, driven by heightened demand, especially from India, seeking to substitute for Russian supplies. Furthermore, the OPEC+ group may deliberate on increasing oil output by 137,000 barrels per day during its forthcoming March 1 meeting after maintaining a production freeze in the first quarter.
The unfolding events surrounding the U.S.-Iran negotiations and their potential impact on oil supply present a complex landscape, while the responses from oil-producing nations aim to mitigate potential disruptions and meet market demand.