Crude oil prices are climbing due to renewed tensions between the United States and Iran. US President Trump has warned Iran as military forces gather in the area. London Brent oil futures rose by $1.34, reaching $68.67 per barrel, while NY WTI increased by $1.93, settling at $65.14 per barrel.

Impact of US-Iran Tensions

Concerns about US-Iran tensions persist even with ongoing diplomatic talks. Iran has confirmed that nuclear discussions with the US will take place in Oman. Additionally, the US Energy Information Administration reported a decrease of 3.46 million barrels in crude inventories. Production in the Lower 48 states has also fallen to its lowest level since November 2024 due to freezing temperatures affecting drilling. A year ago, oil prices surged on fears of a direct confrontation between the US and Iran. Brent crude soared above $68 per barrel as military forces gathered, significantly pushing prices upward. However, those gains lessened when talks in Oman progressed, showing how quickly geopolitical factors can shift. Currently, Brent crude is trading much higher, around $82 a barrel, which is nearly a 20% rise from February 2025 levels. While tensions between the US and Iran have cooled, we are now facing ongoing shipping disruptions in the Red Sea. This new issue is adding an ongoing risk premium to prices that wasn’t present a year ago. The supply situation has changed compared to last year. Freezing temperatures caused a drop in US output and a 3.46 million barrel reduction in inventories. The latest EIA report indicated a surprising increase in US crude inventories of 5.5 million barrels, hinting at weaker immediate demand. This contrasts with OPEC+’s continued production cuts, which help support prices.

Oil Market Volatility

Given the mixed signals of fragile supply against potentially declining demand, implied volatility in the options market is high. This means traders should look at strategies that could benefit from price changes in either direction, such as long straddles, rather than just a straightforward bet. The cost of call options is high, reflecting market worries about possible supply shocks. In the coming weeks, it’s wise to keep an eye on any escalation in conflicts in the Middle East, which could lead to a sudden price increase. We should also pay attention to economic data from China for insights on global demand. The market is in a delicate position, and any significant news could quickly affect crude oil prices. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now