Oil markets moved higher this week and were hovering near their strongest levels in months as geopolitical tensions in the Middle East raised the prospect of interrupted flows from one of OPEC’s larger producers.
Brent crude futures were down 21 cents at $70.50 a barrel by 0139 GMT on Friday, after they had climbed 3.4% on Thursday to close at their highest level since July 31. The March Brent contract is due to expire later on Friday. The more actively traded April Brent contract was down 37 cents at $69.22.
U.S. West Texas Intermediate (WTI) crude eased 39 cents to $65.03 a barrel after posting a 3.4% gain in the previous session to settle at its highest since September 26. Both benchmarks are on track to record their first monthly gain in six months - Brent is up more than 16% in January, marking its largest monthly jump since January 2022, while WTI is set to rise more than 14% this month, its biggest monthly advance since July 2023.
Market participants have pushed prices higher as tensions escalated following a U.S. military buildup in the Middle East. On Wednesday, U.S. President Donald Trump urged Iran to come to the negotiating table over nuclear weapons or face a U.S. attack, a stance that prompted Tehran to warn it would strike back hard. Traders have translated these developments into an added premium for potential supply disruption.
"This has resulted in added risk premium being built into the (oil) price as traders’ factor in possible disruptions to Iranian exports or Strait of Hormuz flows," IG market analyst Tony Sycamore said.
The Trump administration has been holding talks this week in Washington with senior defence and intelligence officials from Israel and Saudi Arabia for separate discussions on Iran, according to two people familiar with the matter. U.S. officials have stated that the president is reviewing options but has not decided whether to strike Iran.
Some banking analysts downplayed the likelihood of prolonged supply interruptions. JPMorgan analysts led by Natasha Kaneva said that given elevated inflation and the timing of this year’s mid-term elections, they do not anticipate extended oil supply disruptions. The analysts added that if military action occurs, they expect it to be targeted and to avoid Iran's oil production and export infrastructure.
Citigroup projects restrained actions by the United States and Israel in the near term, including limited U.S. measures and potential oil tanker seizures, assigning a 70% probability to that outcome.
Beyond Middle East risks, several other supply setbacks have influenced markets in January. JPMorgan analysts noted combined disruptions of about 1.5 million barrels per day (bpd) from Kazakhstan, Russia and Venezuela this month. In addition, an Arctic weather wave in the United States has been estimated to reduce crude and condensate output by roughly 340,000 bpd in January.
Kazakhstan reported it was restarting the large Tengiz oilfield in stages on Wednesday, with the aim of returning to full production within a week after three unexplained electrical fires earlier in the month had impacted about 7.2 million barrels of oil output.
Meanwhile, Russian oil exports have been hit by bad weather, and Venezuela was said to have cut production after U.S. forces ousted the South American country’s President Nicolas Maduro early this month. Venezuela’s interim government approved a broad reform of its main oil law on Thursday. On the same day, the Trump administration broadly eased sanctions on Venezuela’s oil industry, moves that market observers noted could raise Venezuela’s oil and gas output and encourage investment.
In short, oil prices are being driven higher by a combination of heightened geopolitical risk tied to possible U.S.-Iran military action, targeted concerns about flows through the Strait of Hormuz, and a string of production interruptions and weather-related losses across several producing countries.
These dynamics have pushed Brent and WTI toward their largest monthly gains in years, even as some analysts expect any military action to be limited and targeted to avoid damage to crude export infrastructure.