Oil prices climbed roughly 3% on Thursday, reaching their highest levels in five months, as markets reacted to growing concerns that global crude supplies could be disrupted if the United States moves forward with military action against Iran, one of OPEC’s largest oil producers.
Brent crude futures rose $2.10, or 3.1%, to $70.50 per barrel by 11:07 a.m. EST (16:07 GMT). Meanwhile, U.S. West Texas Intermediate (WTI) gained $2.09, or 3.3%, to $65.30 per barrel.
The rally pushed both benchmarks into technically overbought territory. Brent was on track for its highest closing level since July 31, while WTI was heading toward its strongest close since September 26.
Rising fears of U.S. action against Iran
Market sentiment was driven by reports that Donald Trump is weighing several options against Iran, including targeted strikes on security forces and senior leadership figures. Multiple sources said the goal would be to pressure Tehran internally, even as Israeli and Arab officials cautioned that air power alone would not be enough to remove Iran’s ruling clerical establishment.
Two U.S. sources familiar with the discussions said the administration is seeking to create conditions for potential regime change following a violent crackdown earlier this month that crushed nationwide protests and resulted in thousands of deaths.
Analysts warn that the biggest immediate risk for oil markets lies in Iran’s potential retaliation.
“The main concern is the collateral impact if Iran strikes neighboring countries or, more critically, shuts the Strait of Hormuz, through which roughly 20 million barrels per day of oil flow,” said John Evans, analyst at PVM.
According to data from the U.S. Energy Information Administration, Iran is the third-largest crude producer in OPEC, behind Saudi Arabia and Iraq.
Meanwhile, European Union foreign ministers approved new sanctions targeting Iranian individuals and entities linked to the violent suppression of protests.
Citi analysts said the rising probability of military action has added an estimated $3 to $4 per barrel geopolitical premium to oil prices. They noted that further escalation could lift Brent crude toward $72 per barrel over the next three months.
Supply developments in Russia, Kazakhstan, and Venezuela
Elsewhere, Russia said it has renewed its invitation for Ukrainian President Volodymyr Zelenskiy to hold peace talks in Moscow, as U.S.-led diplomatic efforts to end the war in Ukraine gain momentum.
Any agreement that allows Russia to export more oil could ease global supply constraints and weigh on prices. Russia remains the world’s third-largest crude producer, behind the United States and Saudi Arabia.
In related developments, U.S. private equity firm Carlyle Group has reached a preliminary deal to acquire most of Lukoil’s foreign assets, which the Russian oil major is being forced to divest due to U.S. sanctions.
Kazakhstan also said Chevron is taking steps to ensure safe and reliable operations at the giant Tengiz oilfield, with the goal of restoring full production within a week.
“Disruptions in Kazakhstan, including issues at the CPC terminal and Tengiz field, have removed a significant volume of supply from the market,” said UBS analyst Giovanni Staunovo.
In Venezuela, executives from Exxon Mobil and Chevron are expected to face heightened scrutiny over potential investment opportunities when they speak with analysts. Valero Energy also confirmed it has agreed to purchase Venezuelan crude from three authorized sellers.
Weak dollar adds support to oil prices
In the United States, the U.S. dollar hovered near its weakest level against a basket of major currencies since February 2022, pressured by uncertainty surrounding U.S. economic policy.
A softer dollar typically supports oil prices by making dollar-denominated crude cheaper for international buyers.
The Federal Reserve recently struck a more optimistic tone on inflation and labor market risks, signaling that interest rates may remain unchanged for longer. Lower borrowing costs could support economic growth and boost oil demand.
Recent data showed new U.S. unemployment claims declined last week, suggesting layoffs remain limited. However, slower hiring has continued to fuel concerns about the labor market outlook.
Analysts also noted that the premium of Brent futures over WTI widened to $5.26 per barrel, the highest since April 2024. When this spread exceeds $4, it often incentivizes energy firms to ship more U.S. crude overseas, potentially lifting U.S. exports.
