Brent crude surges past $70 for first time since September on geopolitical risks

Oil prices extended their gains on Thursday on the back of simmering geopolitical tensions and concerns about the loss of supply. 

Concerns about a possible US military strike on Iran, OPEC's fourth-largest producer with an output of 3.2 million barrels per day, caused Brent oil futures prices to surge on Thursday, reaching a four-month high due to the potential impact on supply.

The March Brent crude oil contract on the Intercontinental Exchange hit a more than four-month high of $70.35 per barrel on Thursday.

It was trading close to $69 per barrel at the time of writing. 

Meanwhile, the price of West Texas Intermediate crude oil topped $65 per barrel for the first time since September. 

“At this morning’s high, crude oil had added 6% since Friday’s close, and WTI is now butting up against an area of resistance which held throughout September,” said David Morrison, senior market analyst at Trade Nation. 

US-Iran tensions prop up prices

Citing US sources familiar with the discussions, Reuters reported on Thursday that Trump is weighing options for Iran. 

These options include targeted strikes against security forces and leaders, which are intended to inspire protesters and potentially lead to the toppling of the country's rulers.

“The key uncertainty facing the market is the potential for escalation between the US and Iran,” Warren Patterson, head of commodities strategy at ING Group, said in a note. 

Iran's current crude oil output is approximately 3.3 million barrels per day, with exports standing at around 1.5 million bpd. 

This export level represents the most immediate worry regarding oil supply. Furthermore, there is also anxiety about the broader implications for regional oil availability.

“Any escalation may pose a risk to Persian Gulf oil flows through the Strait of Hormuz, where around 20m b/d of crude oil passes,” Patterson said. 

Bullish inventory data

US crude oil inventories decreased by 2.3 million barrels last week, according to data from the US Energy Information Administration.

The trade balance shift was primarily due to an 805,000 bpd drop in imports, alongside a 901,000 bpd week-over-week increase in exports. 

The data appears to show the first effects of the recent winter storm: crude oil production in the Lower 48 states is estimated to have fallen by 42,000 bpd week-over-week, and refinery operating rates were reduced by 2.4 percentage points over the week, settling at 90.9%.

Marginal increases were observed in refined product stocks, specifically with gasoline inventories rising by 223,000 barrels and distillate inventories by 329,000 barrels.

Elsewhere, efforts were underway to restore full production at Kazakhstan's massive Tengiz oilfield within a week, following staged restarts after electrical fires halted output last week. 

Meanwhile, in the US, the world's leading oil producer and largest liquefied natural gas (LNG) exporter, crude oil and gas wells are being brought back online after being disrupted by the severe cold of Winter Storm Fern over the weekend.