Oil climbs as Iranian supply concerns overshadow unexpected build in US stockpiles
Oil prices rose for a fifth consecutive session on Wednesday, climbing approximately 1% as market fears intensified over potential supply disruptions from Iran amid escalating geopolitical tensions.
Price Movement
Brent crude futures gained $1.05, or 1.6%, to close at $66.52 a barrel. U.S. West Texas Intermediate crude rose 87 cents, or 1.42%, settling at $62.02 a barrel.
Geopolitical Tensions Drive Risk Premium
The rally was fueled by concerns of a potential U.S. attack on Iran and possible retaliatory strikes against U.S. interests in the Middle East. Iran issued warnings to U.S. allies in the region, stating it would target U.S. bases on their soil if attacked. A U.S. official confirmed heightened regional tensions as a precautionary measure.
Market analysts highlighted the instability. "We are in a period of geopolitical instability and potential supply disruption," said Jorge Montepeque of Onyx Capital Group. "The protests in Iran are seen as potentially leading to a regime change... and the possibility of a U.S. attack is looking high." This sentiment was echoed by Citi analysts, who noted that the Iran protests risk tightening global oil balances, primarily by inflating the geopolitical risk premium, though actual supply has not yet been impacted as protests haven't reached major oil-producing areas.
Conflicting Market Signals
Supporting prices further were comments from Federal Reserve Bank of Minneapolis President Neel Kashkari, who expressed optimism about the economic outlook and expected inflation to moderate.
However, the market received bearish signals from U.S. inventory data. The Energy Information Administration reported a larger-than-expected build in both crude and gasoline stocks last week due to increased refining activity and imports. Crude inventories rose by 3.4 million barrels, contrary to expectations of a draw, while gasoline stocks surged by 9 million barrels.
Analyst Phil Flynn noted that while prices dipped slightly on the inventory report, "the focus seems to be on increasing tensions with Iran and that seems to be overshadowing the report right now."
Venezuela Exports Resume, Capping Gains
Further limiting price gains was news that OPEC member Venezuela has begun reversing production cuts imposed under a U.S. embargo, with crude exports resuming. Two supertankers carrying approximately 1.8 million barrels each departed Venezuelan waters, marking potential first shipments under a new supply deal with the United States following the capture of former President Nicolas Maduro.
