Brent nears six-month high as tensions over Iran push oil higher
Brent oil climbed about 3.8% on concerns a U.S. strike on Iran could disrupt shipments, lifting global crude and tightening supply outlooks.
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By Torontoer Staff
Brent crude rose sharply on Thursday, touching its highest level since early August as markets reacted to rising concerns about a possible U.S. military strike on Iran. By 1404 GMT Brent was up $2.61, or 3.8 percent, at $71.01 a barrel, putting the contract on track for its biggest monthly gain in four years.
U.S. West Texas Intermediate also climbed, gaining $2.54, or 4 percent, to $65.75 a barrel. WTI earlier reached $65.80, a four-month high, and was set for roughly a 14 percent advance for January.
Why prices moved
Traders raised risk premiums after growing signs that Washington may increase pressure on Tehran. The immediate market concern is collateral damage if Iran retaliates against neighbours, or if it closes the Strait of Hormuz, which handles about 20 million barrels per day, said John Evans, an analyst at PVM.
The immediate (market) concern ... is the collateral damage done if Iran takes a swing at its neighbors or possibly even more tellingly, it closes the Strait of Hormuz to the 20 million barrels per day of oil that navigates it.
John Evans, PVM analyst
U.S. President Donald Trump has stepped up pressure on Iran, including threats of military action and the deployment of a U.S. naval group to the region. Reuters reported that U.S. officials are considering options including targeted strikes on security forces and leaders intended to amplify domestic protests against Iran’s government.
Analysts' outlook
Some banks see the geopolitical premium already reflected in prices. Citi analysts estimated the potential for a strike on Iran has added about $3 to $4 per barrel to the oil price, and warned further escalation could push Brent toward $72 a barrel over the next three months.
The potential for Iran getting hit has escalated the geopolitical premium of oil prices by potentially $3 to $4 (per barrel).
Citi analysts
The rapid move higher means markets will be closely watching both the diplomatic and military developments in the Middle East, alongside routine supply data. If tensions persist or widen, the price response could be stronger than current estimates suggest.
Other supply factors tightening the market
The geopolitical premium comes as physical supply conditions tighten. Kazakhstan’s Tengiz oilfield is being restarted in stages after electrical fires forced a cut to output last week, and operators aim to restore full production within about a week. Separately, U.S. crude and gas producers were bringing wells back online after disruptions from Winter Storm Fern.
Disruptions in Kazakhstan (CPC terminal, Tengiz field force majeure) have removed significant number of barrels from the market, add up the cold weather in the U.S. which disrupted – although temporarily – U.S. crude production and suddenly the oil market is much tighter than expected.
Giovanni Staunovo, UBS analyst
Taken together, supply interruptions and geopolitical risk have tightened near-term balances, supporting the sharp monthly gains seen in both Brent and WTI.
What it means for consumers and markets
Higher crude prices can feed through to refined products, including gasoline and heating fuel, and contribute to broader consumer price pressures. How much consumers feel those effects will depend on the duration of the price move, any additional supply responses, and refinery margins.
- Brent: $71.01 a barrel, up 3.8 percent, highest since August 1
- WTI: $65.75 a barrel, up about 4 percent, four-month high
- January gains: Brent on track for +16 percent, WTI about +14 percent
Markets will monitor developments in the Gulf closely, along with operational updates from major producers, to gauge whether the current risk premium will persist or ease. Short-term volatility looks likely while diplomatic and security decisions unfold.
For now, traders and analysts are treating the situation as a catalyst for higher near-term prices, with potential spillovers to wider energy costs if supply disruptions continue or escalate.
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