Global oil prices are showing a steady increase amid heightened geopolitical tensions in the Middle East. On February 4, Brent futures rose by 56 cents (0.8%) to $67.89 per barrel, while U.S. oil benchmark West Texas Intermediate increased by 63 cents (1.0%) to $63.84 per barrel.
This is reported by Finway
Geopolitical Risks Impact the Oil Market
The rise in prices was a response to an incident in the Strait of Hormuz, where the United States shot down an Iranian drone, and Iranian armed boats approached a U.S.-flagged vessel. This heightened concerns about further escalation of the conflict between Washington and Tehran, which traditionally affects global energy markets.
Both major oil benchmarks added nearly 2% on Tuesday as investors closely monitored developments in the Middle East. Experts note that uncertainty in negotiations between the U.S. and Iran contributes to the maintenance of a risk premium in the oil market.
“Uncertainty about how these negotiations will unfold means that the market is likely to continue factoring in some risk premium,” said commodity strategists at financial group ING on Wednesday.
In addition to the drone incident, a group of Iranian gunboats approached a U.S.-flagged tanker in the Strait of Hormuz, further intensifying concerns about a potential escalation of the situation.
Trade Agreements and Geopolitics Support Growth
Apart from geopolitical factors, the oil market received support from a new trade agreement between the U.S. and India. This agreement raised expectations for growth in global energy demand. Additionally, ongoing Russian attacks on Ukraine have fueled concerns that oil from Russia will remain under international sanctions for an extended period.
Meanwhile, Tehran insists on holding negotiations with the U.S. this week in Oman rather than Turkey, focusing discussions exclusively on nuclear issues. This approach raises doubts about the possibility of holding the meeting as initially planned.
Market analysts predict that amid heightened tensions in the Middle East, oil prices will remain high. In particular, WTI is likely to trade near the $65 per barrel mark in the near term.