Oil prices rise as investors closely monitor US-Iran talks and concerns escalate
Oil prices continued to rise on fears of escalating tensions in the Middle East. A US strike on an Iranian drone and the approach of armed Iranian boats to a US-flagged vessel in the Strait of Hormuz reignited fears of escalating tensions between Washington and Tehran, pushing oil prices higher on Wednesday.
Prices were also supported by a reduction in US inventories.
Brent crude futures rose 56 cents, or 0.8%, to $67.89 a barrel at 04:00 GMT. WTI crude rose 63 cents, or 1.0%, to $63.84 a barrel.
Both indicators had risen by about 2% on Tuesday as investors watched developments between the US and Iran.
Uncertainty surrounding the outcome of these talks means the market will likely continue to price in some risk premium.
Meanwhile, Tehran is demanding that its talks with the US this week be held in Oman, not Türkiye, and that the scope be limited to bilateral negotiations on nuclear issues. Whether the meeting will take place as planned remains doubtful.
Ultimately, rising tensions in the Middle East are supporting the oil market.
According to data from the US Energy Information Administration (EIA), Iran is projected to be OPEC's third-largest crude oil producer by 2025. OPEC members Saudi Arabia, Iran, the United Arab Emirates, Kuwait, and Iraq – neighboring Persian Gulf countries – export most of their crude oil via the Strait of Hormuz, primarily to Asia.
Oil prices also found support from industry data showing a sharp decline in US crude oil inventories. Sources citing figures from the American Petroleum Institute (API) said that inventories in the US, the largest producer and consumer country, fell by more than 11 million barrels last week.
Official data from the US Energy Information Administration (EIA) will be released on Wednesday at 3:30 PM GMT. Analysts had expected an increase in crude oil inventories.
On Tuesday, a trade agreement was signed between the US and India, which boosted hopes of strengthening global energy demand, also supported oil prices; however, Russia's ongoing attacks on Ukraine increased concerns that Moscow's oil would remain under sanctions for a longer period.
India's agreement with the US to halt purchases of Russian crude oil, along with the ongoing Russia-Ukraine war, is also supporting prices, and WTI is expected to continue trading around $65 per barrel for now.
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