Oil prices continued to climb in early Asian trade on Friday morning after posting a sharp increase on Thursday, with the market again pricing in geopolitical risk across multiple key producers and shipping routes.
At the time of writing, West Texas Intermediate was trading around $58.27 per barrel, up by 0.85% or $0.49. On Thursday, both WTI and Brent climbed by over 3%, with Brent on the brink of breaking the $62 mark.
Venezuela remained a major driver of the risk premium after the U.S. escalated enforcement against sanctioned flows by seizing two Venezuela-linked oil tankers in the Atlantic on Wednesday, including one sailing under Russia’s flag, amid an intensifying push to constrain Venezuelan crude movements. One of those seizures was of a Venezuela-linked tanker that had been renamed and registered under a Russian flag after a weeks-long pursuit across the Atlantic. The willingness of the Trump administration to board a tanker under the apparent protection of Russia was a clear warning for the shadow fleet being used to avoid sanctions.
Meanwhile, the risk of a major supply shock related to Iran is climbing as protests swept the country, leading to a nationwide internet blackout. President Trump’s earlier threat to come to the rescue of any peaceful protesters killed by the Iranian regime adds to concerns in oil markets that these protests could result in direct action by the U.S. in Iran.
Developments in Iran’s neighbor, Iraq, added to the broader geopolitical support for crude, as the cabinet approved plans to nationalize operations at the giant West Qurna 2 oilfield to avert potential disruptions linked to U.S. sanctions on Russian stakeholder Lukoil. While that won’t lead to an immediate export outage, the prospect of operational or contractual instability at one of the world’s largest oilfields is adding to supply uncertainty.
Finally, a Russia-bound oil tanker was attacked by a drone in the Black Sea, prompting a request for Turkish Coast Guard assistance and a course diversion. While no party has claimed responsibility for the attack, it does highlight further instability in the region and a broader threat to oil flows.
Geopolitical risk risen rapidly at the start of the year and, even in a heavily oversupplied market, is pushing prices higher on concerns of a significant supply disruption.
By Charles Kennedy for Oilprice.com
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