Oil prices rose for the second day in a row, as geopolitical tensions resurfaced following the downing of an Iranian drone near a US aircraft carrier in the Arabian Sea.
Brent crude rose to around $68 a barrel, after climbing 1.6% during Tuesday's session, while West Texas Intermediate crude settled near $64. The incident unsettled markets, but US President Donald Trump stressed that diplomatic negotiations were ongoing, and White House spokeswoman Carolyn Leavitt confirmed that US-Iranian talks were still scheduled for Friday.
Meanwhile, the American Petroleum Institute reported that U.S. crude inventories fell by 11.1 million barrels last week, which would be the largest drawdown since June if official data due on Wednesday is confirmed.
In another sign of escalating tensions, U.S. Central Command said Iran's Revolutionary Guard harassed the U.S. oil tanker Stena Imperot 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 procurement program.
Saul Kavonic, senior energy analyst at MST Market, said the skirmishes involving the drone and the tanker underline for the market how fragile the situation is and how things can escalate without warning, estimating that the market has started pricing in a geopolitical premium of between $5 and $10 a barrel in anticipation of possible US strikes against Iran.
Fears of a conflict in the Middle East – which accounts for roughly a third of global oil supplies – were one factor 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.
On the other hand, OPEC+ expects global oil demand to begin a gradual recovery from March or April, which could contribute to a more balanced market, according to Russian Deputy Prime Minister Alexander Novak. The group plans to decide on March 1st whether to resume monthly production increases after pausing them in the first quarter.
