Oil prices edged higher as traders kept a close watch on geopolitical tensions ahead of expected talks between the US and Iran. The price of Brent crude traded above $68 a barrel, while West Texas Intermediate approached $64.
The increase comes as Iran’s Revolutionary Guard conducted naval drills near the Strait of Hormuz, a vital waterway for global oil shipments. This strategic passage sees about one-fifth of the world’s crude oil pass through it.
Adding to the market’s focus, the US president recently stated that a change in leadership would be the best outcome for Iran, increasing pressure on the country before the negotiations. Trading volumes were relatively thin, however, due to holidays in North America and the Lunar New Year celebrations in China.
Oil has gained over 10% this year, driven by fears that escalating tensions could disrupt supplies from a region that produces about a third of the world’s crude. These concerns have, for now, overshadowed worries about a global surplus. However, prices have pulled back slightly from their peaks as the immediate risk of a conflict seemed to fade and a major energy agency lowered its forecast for global demand growth.
One commodities analyst noted that the market is essentially sitting idle, waiting to see what comes out of the talks. He suggested that if the tensions with Iran were to ease, prices would likely fall back toward $60 a barrel or lower.
Separate US-led talks concerning the war in Ukraine are also scheduled, though the prospects for a quick resolution that would bring Russian oil barrels back to the market appear slim. This was underscored over the weekend by drone strikes on the Black Sea coast that damaged a key seaport and fuel storage tanks.
