Oil Prices Rally for Third Day Amid Escalating US-Iran Tensions
Global oil prices surged by nearly 1.5% on Thursday, extending a bullish streak into its third consecutive trading session. This upward momentum is primarily driven by escalating geopolitical fears, as the United States contemplates potential military action against Iran, a major crude producer in the Middle East. Such actions could severely disrupt regional oil supplies, injecting significant volatility into the market.
Price Movements and Market Performance
Brent crude futures, the international benchmark, advanced by 99 cents, or 1.5%, settling at $69.39 per barrel. Simultaneously, U.S. West Texas Intermediate crude rose by $1.06, or 1.7%, reaching $64.27 per barrel. Both benchmarks have gained approximately 5% since Monday, trading at their highest levels since September 29, reflecting heightened investor anxiety and speculative buying.
Key Drivers Behind the Crude Oil Rally
The recent surge in crude oil prices is attributed to multiple factors converging simultaneously. U.S. President Donald Trump has intensified pressure on Iran to halt its nuclear program, issuing threats of possible military intervention. This geopolitical tension is compounded by the deployment of a U.S. naval task force into the region, further stoking fears of supply disruptions. Iran, as OPEC's fourth-largest producer, contributes around 3.2 million barrels per day to global output, making any instability in the country a critical concern for oil markets.
According to a Reuters report, President Trump is evaluating options to target Iranian security forces and senior leaders, aiming to incite protests that could destabilize the current regime. This aggressive stance has introduced a substantial geopolitical risk premium into oil prices.
Additionally, the U.S. Federal Reserve's decision to leave interest rates unchanged on Wednesday has provided further support to oil prices. Lower interest rates typically reduce borrowing costs, stimulating economic activity and boosting oil consumption. The Fed's move, backed by indications of a resilient U.S. economy, has reinforced market optimism regarding energy demand.
Supporting this bullish sentiment, U.S. crude inventories declined by 2.3 million barrels to 423.8 million barrels in the week ended January 23, as reported by the Energy Information Administration. This drawdown signals robust demand and tightening supplies, contributing to the price uptick.
Analyst Insights and Market Outlook
Choice Institutional Equities noted, "Oil rose to a fresh four-month high after the U.S. President threatened another attack on Iran, urging Tehran to negotiate a nuclear deal. Moreover, the U.S. Fed elected to hold the federal funds rate, providing further support to oil prices."
The brokerage firm highlighted that the market is currently pricing in a geopolitical risk premium of about $6 per barrel. This premium largely reflects constrained Russian barrels, accounting for $3 per barrel, and residual disruption risks from Iran, contributing another $3 per barrel. However, the firm cautioned that oil prices are unlikely to sustain current levels if this embedded premium unwinds, which could trigger a sharp price correction.
Looking ahead, the brokerage anticipates that OPEC+ will maintain its pause on output hikes at the upcoming meeting on February 1, 2026. Despite this, they project Brent crude to average $61.5 per barrel in 2026, citing increased competition from relentless U.S. oil supply, gradual unwinding of OPEC+ production cuts, and the potential removal of sanctions as key factors.
Short-Term Volatility and Trading Levels
Rahul Kalantri, Vice President of Commodities at Mehta Equities, emphasized that crude oil prices are expected to remain volatile in the current trading session. He provided specific support and resistance levels, stating, "Crude oil is having support at $62.55-61.00, and resistance is at $64.40-65.10 in today’s session. In INR, crude oil has support at Rs 5,720-5,640 while resistance is at Rs 5,880-5,965."
Overall, the oil market remains highly sensitive to geopolitical developments and macroeconomic indicators, with traders closely monitoring U.S.-Iran relations and OPEC+ decisions for future price direction.
