Oil prices are heading for their first weekly gain in three weeks amid rising tensions
Geopolitical risk premiums remain a short-term price driver. Oil prices rose on Friday, heading for their first weekly gain in three weeks, amid growing concerns that a conflict could erupt after the U.S. said Iran would suffer if it didn't reach an agreement on its nuclear program within days. Oil prices are holding at six-month highs.
Brent crude futures rose 25 cents, or 0.4%, to $71.91 as of 04:37 GMT, while WTI crude rose 31 cents, or 0.5%, to $66.74.
Prices closed at a six-month high on Thursday after Trump said Iran was peaceful but that "really bad things" would happen if it didn't agree to its nuclear program. Trump set a timeframe of 10 to 15 days.
Meanwhile, days after temporarily closing the Strait of Hormuz for military exercises, Iran announced plans for a routine naval exercise with Russia.
Concerns about potential supply risks stemming from the Strait of Hormuz have unsettled markets, pushing crude oil prices to their highest levels in six months.
Iran is located across the Strait of Hormuz, through which approximately 20% of global oil supply passes, alongside the oil-rich Arabian Peninsula countries. Conflict in the region could limit the supply of oil entering the global market and drive up prices.
Markets, having been put on hold to anticipate a positive development regarding all the geopolitical turmoil, are being left without a positive agreement. The failure of multiple rounds of US-Iran nuclear talks is not surprising, as investors debate the possibility of any developments regarding the impact of the current issues on prices.
Analysts say supply is ample. Other factors supporting oil prices include declining crude oil inventories and limited exports in the world's largest oil-producing and exporting countries.
According to a report released Thursday by the Energy Information Administration (EIA), US crude oil inventories fell by 9 million barrels, while refinery utilization and exports increased.
Concerns about how interest rates will shape up in the US, the world's largest oil consumer, have limited the rise in oil prices.
Recent Fed minutes suggesting that interest rates will remain stable or that there is a risk of further rate hikes if inflation remains high could limit demand.
Low interest rates are generally seen as supportive of crude oil prices.
Markets are also assessing the impact of abundant supply on prices, along with discussions within OPEC+ suggesting a renewed increase in oil production starting in April.
The oil surplus seen in the second half of 2025 appears to have continued in January and is likely to persist. This means that a 2 million barrels per day production cut will be needed in 2027 to prevent excessive inventory buildup.
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