Washington: Oil prices rose for the second consecutive day, as geopolitical tensions resurfaced following the downing of an Iranian drone near a US aircraft carrier in the Arabian Sea. Brent crude climbed to around $68 a barrel early Wednesday, after rising 1.6%, while West Texas Intermediate crude settled near $64.
According to National Iraqi News Agency, the incident has unsettled markets, but US President Donald Trump stressed that diplomatic negotiations are still ongoing, while White House spokeswoman Carolyn Leavitt confirmed that US-Iranian talks are still scheduled for Friday. Meanwhile, the American Petroleum Institute reported that U.S. crude oil inventories fell by 11.1 million barrels last week, which would be the largest draw since June if official data due on Wednesday is confirmed.
In another sign of escalating tensions, U.S. Central Command said that Iran’s Revolutionary Guard harassed the U.S. oil tanker Stena Impero as it transited the Strait of Hormuz, a vital waterway for global oil trade. The tanker is part of the U.S. military’s fuel purchase program. ‘The drone and tanker skirmishes underline for the market how fragile the situation is and how quickly things can escalate,’ said Saul Kavonic, senior energy analyst at MST Markets. He estimated that the market has already priced in a geopolitical premium of $5 to $10 per barrel in anticipation of potential U.S. strikes against Iran.
Fears of a conflict in the Middle East-which accounts for roughly a third of global oil supplies-were one of the factors supporting prices last month, despite signs of ample supply. Oil is also affected by the volatility sweeping broader commodity markets, with gold and silver experiencing sharp declines before recovering some of their losses on Tuesday.
Meanwhile, OPEC+ expects global oil demand to begin a gradual recovery from March or April, which could help to rebalance the market, according to Russian Deputy Prime Minister Alexander Novak. The group plans to decide on March 1 whether to resume monthly production increases after pausing them in the first quarter.