As the supply risks are on the agenda, an increase in US crude oil inventories limited price gains
Oil prices rose slightly on Thursday as investors assessed US-Iran talks aimed at preventing a military conflict that could lead to supply disruptions; however, an increase in US crude oil inventories limited price gains.
Brent futures rose 19 cents, or 0.3%, to $71.04 a barrel as of 04:15 GMT. WTI futures rose 15 cents, or 0.2%, to $65.57 a barrel.
Brent oil prices surged to their highest level since July 31 on Monday as Washington deployed military forces to the Middle East to pressure Iran to negotiate on ending its nuclear and ballistic missile programs. Brent and WTI oil prices were largely unchanged on Wednesday,
Investors are focused on whether military conflict can be avoided in US-Iran talks.
Saudi Arabia is increasing oil production amid a potential US-Iran conflict, and US oil inventories have increased by 16 million barrels, limiting price increases.
With this abundance, assuming a conflict is short-lived, WTI is likely to temporarily rise above $70 per barrel before falling back to the $60-65 range.
A prolonged conflict could disrupt supply from Iran, the third-largest crude oil producer in the Organization of Petroleum Exporting Countries (OPEC), and other Middle Eastern exporters. In that case, it is hard to predict how long current inventories will last.
US envoy Steve Witkoff and Jared Kushner will meet with the Iranian delegation in Geneva today, Thursday, for the third round of talks.
The outcome of today's US-Iran nuclear talks is key to the direction of oil prices. A constructive solution could lead to a gradual reduction in the market's risk premium, currently at $10 per barrel, which is already priced in.
If talks fail, the upside risk remains, but the market may refrain from a full-blown reaction until the extent of potential US action against Iran becomes clearer.
Trump has briefly outlined the requirements for a possible attack on Iran, saying he will not allow a country he describes as the world's biggest "sponsor of terrorism" to possess nuclear weapons.
Iranian Foreign Minister Abbas Araqchi said on Tuesday that an agreement with the US is "achievable, but only if diplomacy is prioritized."
Meanwhile, Saudi Arabia is increasing oil production and exports as part of a contingency plan in case a potential US attack on Iran disrupts supplies from the Middle East.
OPEC+ may consider increasing oil production by 137,000 barrels per day for April as it prepares for price increases stemming from tensions between the US and OPEC member Iran, as well as high demand during the summer months.
Another factor limiting the rise in oil prices is the 16 million barrel increase in US crude oil inventories last week, reaching its highest level in three years. According to the Energy Information Administration (EIA), this increase far exceeded the projected 1.5 million barrel increase.
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