Oil prices climbed to their highest level since late September on Wednesday, driven by escalating geopolitical tensions with Iran and a weakening U.S. dollar. A surprise drop in U.S. crude inventories provided further support, putting both major benchmarks on track for their largest monthly percentage gains since July 2023.
Why are oil prices rising?
Prices are being lifted by a combination of geopolitical risk and market fundamentals. The main trigger is rising Middle East tension after President Trump warned Iran to negotiate a nuclear deal or risk a harsher attack than in June, as a U.S. aircraft carrier is now positioned in the region. A U.S. aircraft carrier is now in the area. A significantly weaker U.S. dollar, which makes oil cheaper for foreign buyers, and an unexpected draw in U.S. crude stockpiles added upward pressure. Analyst Phil Flynn noted markets rose on “concerns about the U.S.’ armada” but later pulled back on hopes for Ukraine peace talks.
What were the price movements?
Brent crude futures settled at $68.40 a barrel, gaining 83 cents (1.23%). U.S. West Texas Intermediate (WTI) crude closed at $63.21, up 82 cents (1.31%). For the month, Brent is set to rise approximately 12% and WTI about 10%, marking their strongest monthly performances in over two and a half years. Prices briefly pared gains on news that Russia-Ukraine-U.S. trilateral negotiations will resume in Abu Dhabi on February 1.
How did U.S. inventory data affect the market?
The U.S. Energy Information Administration reported a surprise draw of 2.3 million barrels in crude inventories for the week ended January 23, bringing stocks down to 423.8 million barrels. This contrasted with analysts’ expectations for a 1.8 million-barrel build. UBS analyst Giovanni Staunovo called it a “solid report,” citing strong crude exports and lower imports. The market now awaits next week’s data to gauge the impact of a major winter storm that temporarily reduced U.S. crude output by an estimated 600,000 barrels per day.
What other factors are supporting prices?
Weak U.S. Dollar: The dollar index is near a four-year low, allowing foreign currency holders more purchasing power for oil priced in dollars.
Federal Reserve Policy: The Fed kept interest rates unchanged on Wednesday, and its statement offered few signals on future cuts, leaving the dollar under pressure.
Supply Disruptions: Lost output in Kazakhstan continues to underpin prices. While the OPEC+ member plans to restart its giant Tengiz field within a week, sources suggest repairs may take longer.
FAQs
Q: What is the main reason oil prices are up today?
A: Prices are mostly moving higher amid concerns about a possible U.S.-Iran conflict following President Trump’s ultimatum and the movement of a U.S. carrier group into the Middle East.
Q: How much did U.S. crude inventories fall?
A: U.S. commercial crude stocks fell by 2.3 million barrels last week, a surprise draw against expectations for an increase.
Q: What are the current prices for Brent and WTI crude?
A: As of settlement, Brent crude is at $68.40 per barrel, and U.S. WTI crude is at $63.21 per barrel.
Q: Could prices fall soon?
A: Prices saw a mild pullback on hopes that Ukraine peace talks may resume. Further easing in geopolitical hotspots or a strong rebound in the U.S. dollar could push prices lower.
