Oil Edges Higher as U.S.–Iran Talks Offset Inventory Surge

BY COMFORT OGBONNA

Oil prices ticked up Thursday as traders weighed the possibility that renewed diplomacy between the United States and Iran could prevent a military confrontation that might disrupt global crude supplies. Gains, however, remained limited after fresh data showed a sharp increase in U.S. crude inventories.

Brent crude futures were trading at $71.06 per barrel, up 21 cents, or 0.3%, in early dealings. West Texas Intermediate futures rose 16 cents, or 0.2%, to $65.58 per barrel.

Although both benchmarks settled largely unchanged on Wednesday, Brent earlier this week climbed to its highest level since late July as Washington repositioned military assets in the Middle East to increase pressure on Tehran to curb its nuclear and ballistic missile programs. The strategic buildup heightened concerns about potential supply disruptions in one of the world’s most critical oil-producing regions.

Market participants are now closely watching diplomatic efforts. Analysts say investor focus has shifted to whether negotiations can ease tensions and avert direct conflict. Toshitaka Tazawa, an analyst at Fujitomi Securities, noted that even if hostilities were to erupt, a limited and short-lived confrontation would likely trigger only a temporary spike in prices. Under that scenario, WTI could briefly rise above $70 per barrel before retreating to the $60–$65 range once immediate risks subside.

However, a prolonged or broader conflict could have more serious consequences. Iran is the third-largest crude producer within the Organization of the Petroleum Exporting Countries, and any sustained disruption to its exports — or to shipments from neighboring producers — could tighten global supply significantly and drive prices higher for an extended period.

Diplomatic efforts are continuing in Geneva, where U.S. envoy Steve Witkoff and Jared Kushner are scheduled to meet an Iranian delegation for a third round of discussions. The talks are viewed as pivotal in determining the near-term trajectory of oil markets.

Analysts at ING said the outcome of the negotiations would be key to price direction. A constructive resolution could lead traders to unwind what they estimate is roughly a $10 per barrel geopolitical risk premium currently embedded in prices. Conversely, if talks collapse, markets may initially respond cautiously until the scale and nature of any potential U.S. action become clearer.

U.S. President Donald Trump underscored the stakes earlier this week, stating during his State of the Union address that he would not allow Iran to obtain a nuclear weapon. Iranian Foreign Minister Abbas Araqchi signaled that an agreement remains possible but emphasized that diplomacy must take precedence.

Regional producers are also preparing for contingencies. Saudi Arabia is reportedly increasing oil production and exports as part of a plan to offset potential supply disruptions should a U.S. strike on Iran occur. Such preemptive measures could help cushion the market against sudden shortages, though they may not fully neutralize the impact of a broader conflict.

Meanwhile, the OPEC+ alliance — which includes OPEC members and partners such as Russia — is expected to consider raising output by 137,000 barrels per day for April. The group is balancing expectations of peak summer demand with the possibility that geopolitical tensions could provide additional support for prices.

Limiting oil’s upward momentum was a sharp increase in U.S. crude stockpiles. Data from the Energy Information Administration showed that inventories rose by 16 million barrels last week, marking the largest build in three years and far exceeding forecasts for a 1.5-million-barrel increase. The unexpected surge suggests softer demand or rising supply in the world’s largest oil consumer, dampening bullish sentiment driven by geopolitical risks.

With diplomacy, military positioning, supply adjustments, and inventory data all in play, oil markets remain finely balanced. Traders are likely to stay cautious until clearer signals emerge from the U.S.–Iran negotiations and from producers’ next moves.