Oil settled at highest since August as US-Iran tensions continue to lift risk premium

Oil prices settled at their highest levels since August on Friday, as mounting geopolitical tension between the US and Iran injected a fresh risk premium into the market and triggered late-session short covering.

Brent crude closed at $71.76 a barrel, up 10 cents, or 0.14%, while US WTI finished at $66.39 a barrel, down 4 cents, or 0.06%. 

Both benchmarks had traded lower for much of the session before reversing course amid growing concern that diplomatic efforts over Iran’s nuclear programme may be narrowing. President Donald Trump said Iran has ten to fifteen days at most to reach an agreement on its nuclear activities, intensifying speculation that Washington could consider military options. Market participants noted that the scale of recent US deployments in the region is unlike anything seen since 2003, when forces were mobilised ahead of the Iraq invasion.

Any escalation would threaten supply from the Middle East, which accounts for roughly a third of global oil production. However, analysts also point out that a sharp rise in crude prices could carry domestic political risks for the White House, particularly if higher pump prices weigh on consumers ahead of the midterm elections.

Beyond geopolitics, fundamental data lent additional support. US commercial crude inventories fell by 9 million barrels last week, the largest draw since early September, according to the US Energy Information Administration. Refined product stocks also declined across the board, signalling firm refinery demand and steady end-user consumption.

With geopolitical uncertainty converging with tightening US supply, the oil market appears increasingly headline-driven, leaving prices vulnerable to further volatility in the sessions ahead.

Written by: Farid Muzaffar