Oil inches higher as US-Iran talks shape supply outlook

Oil prices edged up on Thursday as investors weighed whether negotiations between Washington and Tehran could prevent a military confrontation that might disrupt crude supplies. However, gains were limited by a sharp rise in US oil inventories.

Brent crude futures climbed 19 cents, or 0.3 percent, to $71.04 per barrel by 0415 GMT, while US West Texas Intermediate added 15 cents, or 0.2 percent, to $65.57 per barrel.

Earlier in the week, Brent reached its highest level since late July after the United States deployed additional military assets to the Middle East in an effort to pressure Iran to curb its nuclear and ballistic missile programs.

Market participants are closely watching whether talks between the two sides will avert conflict. US envoys Steve Witkoff and Jared Kushner are scheduled to meet an Iranian delegation in Geneva for a third round of discussions.

Analysts at ING Group said the outcome of the negotiations would be crucial for oil prices. They estimated that as much as a $10 per barrel risk premium may already be built into the market due to geopolitical tensions. A positive outcome could gradually unwind that premium, while a breakdown in talks could push prices higher, depending on the scale of any US action.

US President Donald Trump reiterated in his State of the Union address that he would not allow Iran to obtain a nuclear weapon. Meanwhile, Iranian Foreign Minister Abbas Araghchi said a deal remained possible if diplomacy takes precedence.

An extended conflict could disrupt supplies from Iran, the third-largest producer in the Organization of the Petroleum Exporting Countries, as well as from other Middle Eastern exporters.

Separately, sources said Saudi Arabia is preparing to boost production and exports as part of contingency planning in case regional supplies are affected. OPEC+, which includes OPEC members and allies such as Russia, is reportedly considering increasing output by 137,000 barrels per day in April as it prepares for peak summer demand.

Limiting further gains, US crude stockpiles surged by 16 million barrels last week, the largest increase in three years, according to data from the Energy Information Administration. The rise far exceeded analysts’ expectations of a 1.5-million-barrel build.