The rally comes as shipping through the Strait of Hormuz has effectively stalled, raising concerns that prolonged disruptions could force producers across the region to cut output. Roughly one-fifth of global oil supply normally passes through the chokepoint.

Analysts warn the impact could grow if the closure persists. JPMorgan estimates crude exports from Iraq and Kuwait could begin shutting within days, potentially removing 3.3 million barrels per day from global supply by the eighth day of the conflict. Iraq has already reduced output by nearly 1.5 million bpd due to limited storage and blocked export routes.

Energy infrastructure across the region is also facing mounting pressure. Qatar declared force majeure on LNG exports, with sources indicating normal production may take at least a month to restore.

Meanwhile, tanker attacks continued in the Gulf. The Bahamas-flagged crude tanker Sonangol Namibe reported hull damage following an explosion near Iraq’s Khor al Zubair port. Vessel traffic in and out of the Strait of Hormuz has nearly halted, leaving roughly 300 tankers stranded inside the passage, according to ship-tracking data.

Tightening supply expectations have also pushed refined product prices higher. U.S. diesel futures jumped about 10% during the session, briefly rising above $3.60 per gallon, as traders priced in the loss of Middle Eastern exports and refinery shutdowns in parts of the region, China, and India.

With the conflict continuing to widen and energy shipments constrained, analysts expect crude markets to remain highly sensitive to developments surrounding the Strait of Hormuz and regional production levels.

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Brent crude settled at $81.40 per barrel, unchanged from Tuesday and its highest close since January 2025. U.S. West Texas Intermediate rose 10 cents, or 0.1%, to settle at $74.66, marking its highest finish since June for a second straight session.

Earlier in the day, Brent climbed more than $3 to an intraday peak of $84.48 before paring gains after reports that Iranian intelligence officials had signaled openness to talks with U.S. counterparts about ending the conflict.

Despite the flat close, prices remain elevated as traders assess the risk of a prolonged war and continued supply disruption. The Strait of Hormuz — which handles roughly one-fifth of global oil flows — has been effectively shut for five days, severely constraining shipping. The region accounts for just under one-third of global oil production.

Iraq, OPEC’s second-largest producer, has cut nearly 1.5 million barrels per day due to storage constraints and blocked export routes. Officials warned output could be reduced by as much as 3 million bpd within days if exports do not resume.

U.S. President Donald Trump said the Navy could begin escorting oil tankers through the strait if needed and ordered political risk insurance and financial guarantees for Gulf maritime trade. The Pentagon and Energy Department are also drafting plans to secure tanker passage.

Meanwhile, some countries and refiners are seeking alternative supplies. India and Indonesia are looking for replacement cargoes, while certain Chinese refineries are shutting units or advancing maintenance schedules.

On the data front, U.S. crude inventories rose by 3.5 million barrels last week to their highest level in three-and-a-half years, exceeding expectations for a 2.3 million-barrel build. Gasoline stocks fell by 1.7 million barrels, while distillate inventories increased by 429,000 barrels.

Although global crude supply remains ample, including near-record volumes held in floating storage, traders expect continued volatility until energy shipments can move freely and geopolitical risk subsides.

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During the session, Brent touched an intraday high of $85.12, the strongest level since July 2024, before trimming gains after President Donald Trump said many Iranian naval and air assets had been destroyed and suggested Tehran’s capacity to sustain attacks would weaken.

The conflict widened on Tuesday as Israeli and U.S. forces struck targets across Iran, prompting Iranian retaliation around the Gulf and in Lebanon. Iraq — OPEC’s second-largest producer behind Saudi Arabia — cut output by nearly 1.5 million barrels per day, with reductions potentially doubling as storage fills due to export disruptions.

Iran has targeted regional energy infrastructure and vessels in the Strait of Hormuz, the chokepoint that handles about one-fifth of global oil and LNG trade. Tankers are avoiding the passage after insurers withdrew coverage, sending global shipping rates sharply higher. Iranian media reported that Tehran would fire on ships attempting to transit the strait, further unnerving markets.

Energy disruptions are spreading. Qatar has halted LNG production, Israel has shut some offshore gas fields, and Saudi Arabia closed its largest refinery. Saudi Aramco is attempting to reroute crude exports via the Red Sea to bypass Hormuz, according to sources.

Refined products rallied sharply. U.S. diesel futures jumped about 10% to their highest since October 2023, while gasoline futures climbed nearly 4% to $2.46 per gallon, the strongest since July 2024. Refining crack spreads surged to their highest levels since 2023.

Global natural gas markets also spiked, with benchmark Dutch, British, European and Asian LNG prices all rising strongly.

The Brent premium over WTI widened to nearly $8 per barrel — the largest gap since November 2022 — a level analysts say supports U.S. crude exports when it exceeds $4.

Traders are also watching U.S. inventory data. The American Petroleum Institute was due to release figures Tuesday, followed by the Energy Information Administration on Wednesday. Analysts expect a 2.3-million-barrel build in U.S. crude stocks for the week ended February 27.

With supply outages mounting and shipping constrained, markets remain highly sensitive to headlines as the conflict threatens deeper and more prolonged disruption to global energy flows.

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U.S. crude settled up $4.21, or 6.28%, at $71.23 a barrel. Brent crude finished at $77.74 per barrel, gaining $4.87, or 6.68%.

Qatar halted liquefied natural gas production on Monday after Iranian drone strikes hit facilities at the Ras Laffan industrial complex, escalating energy supply risks across the Gulf. Qatar accounts for roughly 20% of global LNG supply, and state-owned QatarEnergy was preparing to declare force majeure on shipments.

The widening U.S.–Israeli conflict with Iran triggered precautionary shutdowns across the region. Saudi Aramco suspended operations at its 550,000 barrels-per-day Ras Tanura refinery after drones were intercepted nearby, though officials said domestic fuel supplies were unaffected. In Iraqi Kurdistan, producers halted about 200,000 bpd of output exported via Turkey as a precaution. Offshore Israel, Chevron temporarily shut the Leviathan gas field, while Energean suspended output at smaller fields.

Oil prices jumped as much as 13% intraday to above $82 per barrel — the highest since January 2025 — amid near paralysis of shipping through the Strait of Hormuz, which handles roughly one-fifth of global oil supply. European gas prices surged 46% at the Dutch TTF hub.

Explosions were also reported at Iran’s Kharg Island export terminal, which processes about 90% of the country’s crude exports, though the extent of damage remains unclear. Iran produces roughly 3.3 million barrels per day of crude plus 1.3 million bpd of condensate, accounting for about 4.5% of global supply.

With multiple supply hubs under threat, markets are bracing for further volatility as the conflict deepens and energy infrastructure increasingly becomes a direct target.

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Although U.S. and Iranian officials agreed to extend indirect negotiations into next week following talks in Geneva, market skepticism grew over the likelihood of a breakthrough. President Donald Trump has demanded that Iran halt uranium enrichment, setting a short deadline for a deal, while Tehran has resisted key U.S. conditions.

Crude prices initially spiked during Thursday’s talks on reports that discussions had stalled, before easing slightly after Oman’s foreign minister said progress had been made and technical-level discussions would resume next week in Vienna. Still, traders appear increasingly focused on the risk that diplomacy could fail.

Geopolitical risk premiums of roughly $8 to $10 per barrel are estimated to be embedded in current prices, reflecting fears that any military confrontation could disrupt flows through the Strait of Hormuz — a chokepoint that handles about 20% of global oil supply.

To offset potential disruptions, Gulf producers are preparing contingency measures. Abu Dhabi is expected to boost exports of its flagship Murban crude in April, while Saudi Arabia has signaled it could raise output and may increase its official selling prices to Asia for the first time in five months, supported by stronger Indian demand replacing Russian supplies.

Meanwhile, OPEC+ is widely expected to consider increasing output by around 137,000 barrels per day at its March 1 meeting as it begins unwinding a pause in supply hikes.

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Prices later pared those gains after Oman’s foreign minister said “significant progress” had been made and that discussions would resume soon, with technical-level talks scheduled in Vienna next week. Traders said developments in the negotiations are likely to remain the dominant driver of price action in the coming sessions.

The market has embedded a geopolitical risk premium amid fears that a breakdown in talks could lead to military escalation in the Middle East. An extended conflict could disrupt exports from Iran — OPEC’s third-largest producer — and potentially affect other regional suppliers.

However, a constructive diplomatic outcome could unwind much of that premium. Analysts estimate that up to $10 per barrel of geopolitical risk could be priced into crude at current levels.

On the supply side, bearish U.S. inventory data capped gains. The U.S. Energy Information Administration reported on Wednesday that crude stocks surged by 16 million barrels last week, a much larger-than-expected build driven by lower refinery utilization and higher imports.

Meanwhile, Saudi Arabia is reportedly preparing a contingency plan to increase production and exports if a U.S. strike on Iran disrupts regional supplies. Separately, OPEC+ is expected to consider raising output by about 137,000 barrels per day in April as the group prepares for peak summer demand while prices remain firm.

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The U.S. Energy Information Administration reported that crude inventories surged by 16 million barrels last week, far exceeding analyst expectations for a 1.5-million-barrel build. The increase was driven by lower refinery utilization and higher imports. The report also showed a record adjustment factor of 2.7 million barrels per day, reflecting unaccounted-for supply changes.

Despite the bearish data, the impact on prices was limited as traders remain focused on Middle East tensions. In recent sessions, Brent and WTI have climbed to multi-month highs as the U.S. bolstered its military presence in the region in an effort to pressure Iran to curb its nuclear and ballistic missile programs.

President Donald Trump reiterated during his State of the Union address that Washington would not allow Iran to develop a nuclear weapon, keeping the threat of military action in play. A third round of talks between U.S. envoys and an Iranian delegation is scheduled for Thursday in Geneva. Iran’s foreign minister said a deal was “within reach” if diplomacy takes priority.

The key market question remains whether any escalation would materially disrupt Iranian oil production or exports. Iran is OPEC’s third-largest crude producer, and a significant disruption could tighten global supplies. However, traders note that Saudi Arabia could potentially raise output quickly to offset lost barrels, and a strong U.S. naval presence could help keep the Strait of Hormuz open.

In preparation for possible disruption, Saudi Arabia has reportedly activated contingency plans to temporarily boost output and exports. Meanwhile, OPEC+ is expected to consider increasing production by about 137,000 barrels per day in April as it begins unwinding a pause in supply hikes. Eight key OPEC+ producers are set to meet on March 1.

Adding to the uncertainty, U.S. trade policy remains in flux after a Supreme Court ruling reshaped elements of President Trump’s tariff program. A temporary 10% global tariff has taken effect, with signals that it could rise to 15% or higher for some countries, clouding the outlook for global growth and oil demand.

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The retreat came ahead of a third round of indirect nuclear talks scheduled for Thursday in Geneva between U.S. and Iranian delegations, with Iran’s deputy foreign minister saying Tehran was prepared to take necessary steps to reach a deal. While this does not guarantee a comprehensive agreement, it tempered immediate fears of a conflict that might disrupt supply from the Middle East.

Oil markets remain sensitive to the U.S.–Iran dynamic, as heightened tensions have lifted crude toward multi-month highs in recent sessions. Traders are watching closely for diplomatic signals that could either calm or exacerbate geopolitical risk around the Strait of Hormuz, through which a significant share of global crude exports transit.

Several broader market themes also influenced sentiment on Tuesday. U.S. trade policy uncertainty — including the implementation of new global import tariffs — added an element of macroeconomic risk that has weighed on demand expectations. In addition, steps to boost Venezuelan crude exports under a supply deal are expected to increase flows from South America, while U.S. forces seized another sanctioned oil tanker carrying Venezuelan cargo, highlighting enforcement of energy sanctions and floating storage shifts.

On the inventory front, analysts were awaiting weekly crude stockpile data from U.S. reporting agencies, with forecasts pointing to a modest build that would add to existing ample supplies.

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Iran has signaled it may be willing to make concessions on its nuclear program in exchange for sanctions relief and recognition of its right to enrich uranium. U.S. envoys are scheduled to meet an Iranian delegation in Geneva later this week, keeping diplomatic channels open even as the risk of military escalation lingers. Traders continue to assign a meaningful geopolitical premium to prices, reflecting the possibility that talks could falter and trigger conflict in a region that accounts for a significant share of global oil supply.

At the same time, broader macro uncertainty weighed on sentiment. A U.S. Supreme Court ruling last week struck down key elements of President Donald Trump’s tariff framework, prompting questions about the future direction of trade policy. The U.S. Customs and Border Protection agency said it would pause certain tariff collections, but Trump later indicated he would raise a temporary blanket tariff rate to 15%, adding to investor confusion. Equity markets weakened, and oil followed amid concerns that prolonged trade friction could dampen economic growth and fuel demand.

In the U.S. products market, a winter storm sweeping across the Northeast pushed diesel crack spreads up roughly 5%, offering some support to refining margins.

For now, crude remains caught between opposing forces — elevated geopolitical risk underpinning prices and macroeconomic uncertainty capping further gains — with upcoming U.S.–Iran talks likely to set the next directional move.

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For much of the session, prices traded lower as the market waited for clarity on the standoff between Washington and Tehran. President Donald Trump reiterated this week that “bad things” would happen if Iran failed to reach a deal to curb its nuclear ambitions, while signaling he was considering limited military strikes. Iran’s foreign minister said a draft counterproposal could be ready within days following recent talks, keeping diplomacy technically alive even as military assets build in the region.

The oil market remains caught between competing narratives — the risk of sudden escalation versus the possibility that negotiations continue. Iran sits across the Strait of Hormuz from major Gulf producers, and roughly 20% of global oil supply transits the waterway. Any disruption there would have immediate consequences for global crude flows, underpinning the current geopolitical risk premium.

Options markets reflected heightened nervousness, with increased buying of Brent call options in recent days as traders positioned for potential upside spikes. Still, analysts noted that while headline risk is driving short-term price swings, underlying supply conditions remain comfortable.

Supporting prices this week was a sharp 9-million-barrel draw in U.S. crude inventories, alongside higher refinery utilization and exports. However, broader supply expectations continue to temper bullish enthusiasm. OPEC+ has signaled it may resume gradual production increases from April, and analysts at major banks have warned that global oil balances still point to surplus conditions later this year unless deeper production cuts are implemented.

A U.S. Supreme Court ruling against the administration’s use of emergency powers to impose tariffs had little impact on crude markets, as traders remain focused almost exclusively on Middle East developments.

For now, oil appears locked in a geopolitical holding pattern, with traders bracing for a potential binary outcome while balancing firm near-term momentum against expectations of ample supply later in the year.

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