Both contracts are up about 5% since January 26 and are at their highest levels since September 29.Prices are rising as US President Donald Trump has increased pressure on Iran to end its nuclear program, with threats of military strikes, and as a US naval group has arrived in the region. Iran is the fourth largest producer under the Organization of the Petroleum Exporting Countries with an output of 3.2 million barrels per day.
Trump is “considering options” to attack Iranian security forces and leaders to spark protests and possibly topple the current regime, Reuters reported on Thursday, citing US sources familiar with the discussions.
“The potential for Iran to be hit has escalated the geopolitical premium in oil prices by potentially $3 to $4 (per barrel),” Citi analysts said in a note on Wednesday. They added that further geopolitical escalation could push Brent prices up to $72 per barrel.
An unexpected drop in crude inventories in the US, the world’s biggest oil consumer, also supported prices. U.S. crude inventories fell 2.3 million barrels to 423.8 million barrels in the week ended Jan. 23, the Energy Information Administration said on Wednesday, compared with analysts’ expectations in a Reuters poll for a rise of 1.8 million barrels.
“This development suggests that the short-term supply/demand balance has tightened, due to steady refinery demand and limited barrels available to the market,” said Linh Tran, market analyst at XS.com.
Overall, Citi said oil prices could remain elevated due to rising geopolitical risks, U.S. restrictions on Russian oil purchases and continued Chinese purchases, even as markets entered the year expecting major oversupply.
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