Oil prices rose by more than three per cent on Wednesday as traders priced in potential supply disruptions amid concerns of conflict between the United States and Iran. This price movement occurred after talks between Ukraine and Russia in Geneva ended without a breakthrough.
Brent crude oil futures were up $2.80, or 4.15 per cent, at $70.22 a barrel at 13:49 EST, while US West Texas Intermediate (WTI) crude futures gained $2.78, or 4.46 per cent, to $65.11. Both contracts fell to two-week lows on Tuesday.
"The big moves in oil prices today are being solely driven by geopolitics, they continue to react to headlines with respect to meetings between the US and Iran, and Russia and Ukraine," said Andrew Lipow, president of Lipow Oil Associates. "The oil market is pricing in additional risk of a supply disruption," he added.
Oil's drop on Tuesday followed hopes that tensions between the US and Iran were easing after Iran's foreign minister said the countries had reached an understanding on the main guiding principles of their nuclear talks.
But on Wednesday, the Iranian semi-official Fars news agency reported that Iran and Russia will conduct navy drills in the Sea of Oman and the northern Indian Ocean on Thursday.
Just as the talks began on Tuesday, Iranian state media said Iran was temporarily shutting parts of the Strait of Hormuz, a vital global oil supply route, due to security precautions while its elite Revolutionary Guards conducted military drills there. Later, state media said the strait had been shut for a few hours, without making it clear if it had fully reopened.
"Iran knows Trump's negotiation tactics now. It also knows that a disruption in oil exports out of the Strait of Hormuz and a rally in oil prices to $150 per barrel is the very last thing Trump wants," said SEB chief commodities analyst Bjarne Schieldrop in a note.
"Iran has time to negotiate in calmness." Political consultancy Eurasia Group said in a Tuesday note to clients that it thinks there is a 65 per cent probability of US military strikes against Iran by the end of April.
"Everyone is monitoring the amount of military equipment that is flooding the region from the US," said John Kilduff, partner with Again Capital. "This gives an indication that hostilities are imminent," he added.
Two days of peace talks in Geneva between Ukraine and Russia ended on Wednesday without a breakthrough. This resulted in President Volodymyr Zelenskiy accusing Moscow of stalling US-mediated efforts to end the four-year-old war.
Ukraine has faced repeated pressure from US President Donald Trump to agree to a deal that could mean painful concessions, as Russian forces pound its power grid and slowly advance on the battlefield. Zelenskiy described the talks as "difficult."
"There has been a renewed effort to clamp down on Russian exports, so if these talks do go off the rails as Zelenskiy suggested they are, then we could finally see a material drop in the amount of Russian exports headed to the global market," said Again Capital's Kilduff. "That is obviously supportive," he added.
Meanwhile, US oil inventory reports from the American Petroleum Institute, due later in the day, and from the Energy Information Administration on Thursday will also be in focus. Analysts polled by Reuters expect US crude stockpiles likely rose last week.
(Reporting by Georgina McCartney in Houston Siddharth Cavale in New York, Stephanie Kelly and Alex Lawler in London, Mohi Narayan in New Delhi and Katya Golubkova in Tokyo. Editing by Mark Potter, Kirsten Donovan)