Oil prices climbed on Thursday as hopes for a resolution to the U.S.-Iran conflict faded, pushing Brent crude futures above $103 a barrel and forcing markets to price in a prolonged period of supply uncertainty.
"The oil market is repricing expectations with little sign of progress in finding a resolution in the Persian Gulf," ING analysts said in a note, adding that hopes for a resolution are fading as peace talks stall.
Brent crude futures rose $1.26, or 1.2 percent, to $103.17 a barrel, while West Texas Intermediate futures gained 1.3 percent to $94.16. The move was amplified by larger-than-expected draws in U.S. gasoline and distillate inventories, which fell by 4.6 million and 3.4 million barrels, respectively.
With about 20 percent of the world's daily oil supply at risk in the Strait of Hormuz, the diplomatic standoff is the key driver for prices. The failure to restart talks in Pakistan suggests the risk premium in crude is set to remain, keeping prices elevated and adding to global inflationary pressures.
The diplomatic process came to an abrupt halt after U.S. President Donald Trump extended a ceasefire but refused to lift a naval blockade of Iran's trade by sea. Iran, which has demanded the blockade be lifted before formal talks can restart, retaliated by seizing two vessels in the Strait of Hormuz on Wednesday, tightening its control over the critical chokepoint.
Iran’s foreign minister Abbas Araghchi said on social media that blockading Iranian ports is an “act of war and thus a violation of the ceasefire.” The escalation led to the cancellation of a planned trip by U.S. Vice President JD Vance to Islamabad for negotiations.
While geopolitical tensions supported prices, the U.S. energy picture presented a complex backdrop. Total exports of U.S. crude oil and petroleum products climbed by 137,000 barrels per day to a record 12.88 million bpd, as Asian and European buyers sought alternatives to Middle Eastern supply.
However, domestic data from the Energy Information Administration showed a surprise build in crude inventories, which rose by 1.9 million barrels against analyst expectations for a 1.2 million-barrel draw. This suggests that while refined product markets are tight, underlying crude supply in the U.S. remains ample.
"If there’s no deal, I would imagine that oil prices could climb back above $100, which would likely invite pressure on equities," said Fawad Razaqzada, an analyst at FOREX.com.
This article is for informational purposes only and does not constitute investment advice.
