Oil prices rose more than 1.5% in Asian trade on Thursday as concerns grew that a U.S. military strike against Iran could disrupt supplies from the region.
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Oil prices fell on Monday as investors eased fears of a supply shock after U.S. President Donald Trump’s comments on Iran suggested a possible easing of tensions between Tehran and Washington.
President Trump has repeatedly warned of possible intervention if Iran fails to reach a nuclear deal or continues to crack down on protests in the country, which Tehran says are being incited by the West. On Saturday, he told reporters that Iran was in “serious discussions” with the United States.
His comments came after Iran’s top security official, Ali Larijani, said that preparations were underway for negotiations at “X”.
Oil prices recently rose to a six-month high on fears that the United States would launch a military attack against Iran. The US government last week deployed a “massive armada” against Iran, a move that raised concerns of a confrontation with the Middle Eastern country.
Crude oil price in the past year
Brent crude oil, the global benchmark, fell 4.96% to $65.88 a barrel as of 3:22 a.m. ET. U.S. West Texas Intermediate futures fell about 5% to $61.76 a barrel.
Andy Lipow, president of Lipow Oil Associates, said hopes were rising that tensions would ease rather than spiral after prices fell again following reports that the U.S. and Iranian governments were communicating through intermediaries.
“These talks come at a time when Iran is under threat of regional war if attacked, which could lead to a significant increase in oil prices, an outcome the Trump administration wants to avoid,” he told CNBC.
Marco Papic, macro and geopolitical strategist at BCA Research, added that the US administration’s sensitivity to oil prices could act as a brake on further oil price increases. “I think President Trump is concerned that if oil prices rise to $70 to $80, it will put us in even more trouble before the midterm elections.”
Fuel prices have traditionally been a sensitive political issue for voters as the United States approaches midterm elections later this year.
There are also diplomatic considerations at a time when additional supplies are quietly entering the market. Even though global oil production continues to outstrip demand, much of Venezuela’s oil is being pulled from offshore and onshore stocks rather than new production, making more barrels available.
Both experts said these trends set a price ceiling, even as OPEC+ continues to carefully manage output.
“The liquidation and sale of offshore and onshore stocks will bring additional Venezuelan crude to the market, while the oil market will also continue to be supported by OPEC+’s decision to maintain stable current production levels,” Lipou said.
The oil cartel decided on Sunday to leave production levels unchanged for March and extend a three-month supply freeze.
