(Investing) – Oil prices hovered at four-month highs on Thursday, extending recent gains amid fears that rising geopolitical tensions between the U.S. and Iran could result in supply disruptions from the key Middle East producer.
At 10:58 ET (15:58 GMT), for March rose 3.2% to $69.55 a barrel, having earlier climbed as high as $70.58 a barrel, its highest since late-September.
rose 3.5% to $65.43 a barrel, having earlier topped $66 a barrel, also a four-month high.
Both contracts are up around 9% over the course of the last week.
U.S.-Iran tensions soar
Reports late Wednesday indicated U.S. President Donald Trump was considering new military action against Iran, including potential strikes on its leaders and nuclear infrastructure.
Trump had earlier called on the country to reengage with the U.S. and drop its nuclear ambitions, with Tehran rejecting these calls and threatening retaliation.
This came just days after U.S. ships arrived in the Middle East, with Trump recently claiming that another armada was on its way to the region.
Heightened geopolitical tensions in the Middle East saw traders attach a greater risk premium to crude, as markets feared potential disruptions in Iranian crude output from any conflict.
Iran is the fourth-largest producer in the Organization of Petroleum Exporting Countries, with an output of 3.2 million barrels per day.
“This will be the most immediate supply concern,” said analysts at ING, in a note. “However, there are also concerns about what this could mean for regional oil supplies. Any escalation may pose a risk to Persian Gulf oil flows through the Strait of Hormuz, where around 20m b/d of crude oil passes.”
However, “Trump aims to achieve one goal: a nuclear deal with Iran and nothing else,” said analysts at Kepler Cheuvreux, in a note dated Jan. 29, and thus they see little probability of Iranian oil supply disruptions despite the deployment of a U.S. naval “armada” in the region.
“We would largely rule out a broad U.S. bombing campaign against Iran, as quite simply, its strategic purpose is unclear,” said Kepler, as “Trump’s primary objective remains the dismantling of Iran’s nuclear programme, not regime change per se.”
Oil price could continue to rise short-term, Kepler added, but the gains will be short lived, perhaps around a couple of weeks.
U.S. winter storm disrupts supplies, inventories shrink
Oil prices were also helped higher this week as a winter storm caused heavy snowfall and sub-zero temperatures in vast swathes of the U.S., disrupting crude production.
Reports showed at least 2 million barrels of crude per day of production being taken offline in the past week, while exports from the Gulf coast were also disrupted.
Extended output disruptions are expected to tighten U.S. oil supplies, with an unexpected drop in U.S. oil inventories suggesting that such a trend was already underway.
shrank by 2.295 million barrels in the week to January 23, much more than expectations for a drop of 0.2 million barrels, government data showed on Wednesday.
“This was driven by an 805k b/d decline in imports, while exports grew 901k b/d WoW,” said ING. “The initial impact from the recent winter storm appears to be reflected in the numbers, with crude oil output in the Lower 48 estimated to have fallen 42k b/d week-on-week, while refineries reduced operating rates by 2.4 percentage points over the week to 90.9%.”
Ambar Warrick and Peter Nurse contributed to this article
