Oil posts biggest monthly gain in years on threat of US attack on Iran

Oil prices fell on Friday but posted their biggest monthly gain in years as the market factored in the threat of a US attack on Iran that could disrupt supply from the OPEC member.

Brent, the global benchmark for crude, settled 0.39 percent lower at $69.32 a barrel, while West Texas Intermediate, which tracks US crude, was down 0.32 percent at $65.21 a barrel.

On Thursday, Brent futures rose above the $70 mark for the first time since September, closing at $70.7 a barrel on concerns over US military action against Iran.

Brent’s strongest monthly gain since July 2023 was “underpinned by a rising geopolitical risk premium linked to US President Donald Trump’s warnings of potential military strikes if Iran fails to agree to a new nuclear deal,” said MUFG research analyst Soojin Kim.

Oil prices have increased, “suggesting markets are assigning a similar, if not higher, probability to near-term military action and associated supply risks,” Rystad Energy said in a note.

The possibility of a US attack on Iran has increased in recent days, with Mr. Trump sending the USS Abraham Lincoln carrier strike group to the Middle East. Mr Trump also told Tehran that it could face a “far worse” attack than last year’s strikes unless it begins talks over its nuclear program.

Iran responded to the threat by saying any US attack on the country would be seen as the “start of war” and issued its own threat that it would respond by striking the heart of Tel Aviv.

The warning came as Iran's Islamic Revolutionary Guard Corps prepared to host naval drills in the Strait of Hormuz, a chokepoint for global oil flows. The state-run Press TV channel said the two-day live-fire exercises would begin on Sunday.

The market focus remains on the Strait of Hormuz, Ms. Kim said. This highlights “the fragility of sentiment despite expectations that ample global supply could weigh on prices,” she added.

Iran is a major producer of oil, with output reaching 3.18 million barrels a day as of December, data from OPEC shows. It is the fourth biggest producer within Opec after Saudi Arabia, Iraq, and the UAE.

“Markets appear to be taking these statements seriously, particularly given the administration’s track record of following through on military threats, in contrast to its trade-related rhetoric, which has often been scaled back or delayed,” Rystad said.

The US attacked nuclear sites in Iran last year and also captured Venezuelan President Nicolas Maduro this year after issuing warnings for several weeks prior. It also struck ISIS in Nigeria following public accusations of systematic killings of Christians in Nigeria in December.

“Tensions between the US and Iran these days don’t only push oil prices higher … they also point to potential disruptions in major trade routes in the region,” said Swissquote senior analyst Ipek Ozkardeskaya.

Disruption to supplies as a result of cold weather in the US is also supporting oil prices.

About half a million barrels a day of crude production, or nearly 0.5 percent of global supply, remained offline in the US on Thursday, as an Arctic blast gripped a large area of the country in the wake of a winter storm over the weekend, Reuters reported, citing Energy Aspects.