Oil prices rise after US sanctions on Iran, escalated tensions in West Asia

Oil prices rose on Thursday after the US issued new Iran-related sanctions, data showed a higher-than-expected fuel inventory drawdown in the US and renewed tensions in the Middle East countered strength in the dollar.

 

Brent crude futures were up 97 cents, or 1.37 per cent, to $71.75 a barrel by 10:57 a.m. EDT (1457 GMT), having gained more than $1 during the session.

 

The US West Texas Intermediate crude (WTI) contract for April, expiring on Thursday, rose 96 cents to $68.12. 

 

The more actively traded WTI May contract rose 94 cents, or 1.4 per cent, to $67.85, having risen more than $1 during the session.

 

The US on Thursday issued new Iran-related sanctions, targeting one individual and several entities including a Chinese "teapot" oil refinery for purchasing and processing Iranian crude oil, the Treasury Department website showed.

 

Iran produces more than 3 million barrels per day of crude oil.

 

"We were looking for some kind of catalyst to move and that was the ticket that pushed us back towards the high," said Phil Flynn, senior analyst with the Price Futures Group.

 

Meanwhile, US government data showed a higher-than-expected drawdown last week in distillate inventories, including diesel and heating oil, which fell by 2.8 million barrels, outstripping a drop of 300,000 barrels expected in a Reuters poll.

 

"US oil demand outlook remains healthy despite lower air travel passenger volumes," JPMorgan analysts said in a note, adding that reduced US travel activity did not signal broader weakness in the demand outlook.

 

US crude inventories rose 1.7 million barrels, however, exceeding expectations for an increase of 512,000 barrels in an earlier Reuters poll.

 

"Available oil inventory data suggests a moderately undersupplied oil market in early 2025. We retain our view that the oil market will be closely balanced this year, in contrast to market expectations of larger oil surpluses," said Giovanni Staunovo, an analyst at UBS.

 

'Choppy upward drift'

 

Putting a lid on crude prices was the dollar, which inched up after the Federal Reserve indicated on Wednesday it was in no rush to cut interest rates further this year due to uncertainties around US tariffs.

The US dollar was up 0.52 per cent, making crude more expensive for foreign buyers.

 

The US central bank left its key interest rate unchanged on Wednesday, a move widely anticipated by the market, but maintained its projection of two 25-basis-point rate cuts by the end of this year.

 

Interest rate cuts typically boost economic activity and energy demand.

 

Some analysts, however, are expecting an uneven oil price uptrend in the near term.

 

"I am expecting a choppy upward drift in the oil markets right now," said Kelvin Wong, senior market analyst at OANDA, adding that stimulus measures out of China and renewed hostilities between Israel and Hamas were bullish price drivers.

 

Global risk premiums rose after Israel launched a new ground operation on Wednesday in Gaza after breaking a ceasefire of nearly two months.

 

"Amid the prevailing uncertainty, the risk of sanctions is once again coming into focus, as the Trump administration adopts a tougher stance on Venezuela, Iran, and Russia," J.P. Morgan analysts said in a note on Thursday.

 

The US kept up air strikes on Houthi targets in Yemen in retaliation for the group's attacks on ships in the Red Sea.

 

US President Donald Trump has also vowed to hold Iran responsible for future Houthi attacks.

 

Staunovo added that US tariff news is likely to keep oil prices volatile in the near term.

 

Trump's push to impose tariffs on Canada, Mexico and China has raised recession fears, weighing on oil prices.

 

"Tariff concerns seem to be holding oil back a bit," Flynn added.

 

J.P. Morgan said it anticipates Brent prices to recover into the mid-to-high $70s level over the next couple of months, before dipping below $70 and ending the year in the mid-$60s level, averaging around $73.