Oil prices jumped over 3% on Wednesday as geopolitical risk resurfaced following reports that planned U.S.–Iran talks scheduled for Friday could fall apart. Brent crude futures settled $2.13, or 3.16%, higher at $69.46 a barrel, while U.S. West Texas Intermediate gained $1.93, or 3.05%, to $65.14.
Reports that the United States rejected Iran’s request to change the location of the talks, raised doubts over whether negotiations would proceed. Crude markets have seesawed this week between hopes for de-escalation and renewed fears of supply disruptions tied to rising tensions in the Middle East. Analysts said a geopolitical risk premium remains embedded in prices, driven less by fundamentals and more by the threat of conflict. Iran produces roughly 3.4 million barrels per day, but the larger concern is its influence over the Strait of Hormuz, a critical chokepoint through which about 20% of global oil flows.
Tensions were further underscored by reports that the U.S. military shot down an Iranian drone that approached a U.S. aircraft carrier in the Arabian Sea, while Iranian gunboats separately moved toward a U.S.-flagged tanker north of Oman. Several major OPEC producers, including Saudi Arabia, Iran, Iraq, Kuwait and the UAE, ship most of their crude through the Strait, amplifying market sensitivity to any escalation.
On the demand side, India’s imports of Russian crude slipped again in January, extending a decline that began in December, as refiners sought alternative supplies amid sanctions pressure and ongoing U.S.–India trade discussions.
Supporting prices late in the session, U.S. government data showed a larger-than-expected draw in crude inventories. The Energy Information Administration reported that U.S. crude stocks fell by 3.5 million barrels last week to 420.3 million barrels as winter storms curtailed output, defying expectations for a modest build. However, analysts cautioned that the bullish impact was limited, as the draw was far smaller than the more than 11 million-barrel decline estimated earlier by the American Petroleum Institute.