Brent zooms past $71 amid global tensions; market focuses on Hormuz risks

The April contract for Brent crude oil crossed $71 per barrel on Thursday for the first time in over three weeks. 

Geopolitical tensions simmered as both the US and Iran stepped up military activities in the Middle East, which sits on more than half of the world’s oil reserves. 

In Asian trading on Thursday, oil prices had dipped slightly, before regaining their upside momentum. 

Oil prices surge amid geopolitical tensions

The April contract for Brent crude oil on the Intercontinental Exchange was at $70.55 per barrel, up 0.3%.

The contract had hit $71.41 a barrel, its highest level since January 29. 

Meanwhile, the West Texas Intermediate crude oil price was at $65.29 a barrel, up 0.4% from the previous close. 

Oil prices registered gains of nearly 5% in the previous session, triggered by a statement from US Vice President JD Vance, who indicated that the recent round of talks failed to address critical "red lines" established by the United States.

Also, the oil market's anxiety was significantly heightened by a public and definitive declaration from President Donald Trump, who explicitly stated that the US administration "reserves the right to use military force" if diplomatic efforts fail.

This explicit threat of military action, coupled with the perception of a diplomatic failure, immediately introduced a substantial risk premium into the oil market. 

Market traders viewed these developments as dramatically increasing the likelihood of a supply disruption originating from the Middle East, a region vital to global oil production.

“Oil prices could regain ground on potential supply risks amid escalating tensions between the United States (US) and Iran, as well as stalled Ukraine-Russia negotiations,” Akhtar Faruqui, editor at FXStreet, said in a report. 

Key geopolitical flashpoints and supply risks

The possibility of US military intervention escalating into a sustained operation is also noted in reports, with Israel advocating for a focus on regime change in Iran.

There is also a risk of supply disruptions from the Strait of Hormuz.

According to data from energy consulting firm Kpler, roughly one-third of all crude exports transported by sea move through this narrow waterway.

The Strait of Hormuz is a crucial chokepoint, through which 20% to 25% of the world's oil supply is transported.

Its closure would inevitably lead to a drastic rise in oil prices. 

The Middle East has seen an increased US military presence already, with the USS Abraham Lincoln aircraft carrier already deployed and the USS Gerald Ford currently en route, both having been sent by the Trump administration.

Additionally, peace talks between Ukraine and Russia in Geneva concluded after two days without any reported progress, Reuters stated. 

Ukrainian President Volodymyr Zelenskiy criticised Moscow, alleging delays in the US-mediated efforts to end the four-year conflict. 

As Russian forces continue to target energy infrastructure and gain ground, President Trump has repeatedly pressured Ukraine to accept a deal that may necessitate major concessions.

Global crude trade and US inventories

In trade news, India's state-run Bharat Petroleum Corporation Limited (BPCL) has completed its inaugural purchase of Venezuelan crude. 

Simultaneously, HPCL Mittal Energy Limited has also procured crude cargoes from the South American nation, marking their first such transaction in two years, according to Reuters sources.

Elsewhere, the American Petroleum Institute (API) reported a decrease of 609,000 barrels in US weekly crude oil stocks last week. 

This decline partially offsets the significant 13.4 million-barrel increase observed in the preceding week, which was the largest build recorded since January 2023.