Oil prices rose by 1.33% on Monday as investors weighed the market implications of upcoming US-Iran talks aimed at de-escalating tensions in the region. The increase was driven primarily by Brent crude futures, which settled at $68.65 a barrel, up 90 cents from the previous day's close. Meanwhile, US West Texas Intermediate crude rose by 86 cents to $63.75 a barrel, marking a 1.37% gain. However, the contract did not have settlement on Monday due to the US Presidents Day holiday, which resulted in no trading activity during that time period.
The current market sentiment is one of caution, with investors taking a wait-and-see approach ahead of the upcoming talks between the US and Iran. Fears of supply disruption from these tensions have helped keep oil prices stable, according to Tamas Varga, an analyst at PVM. This suggests that the market is anticipating a potential resolution to the conflict, which would alleviate concerns about disruptions to global oil supplies.
The Lunar New Year holidays in China, South Korea, and Taiwan are also expected to dampen trade activity, as these countries typically experience increased demand for oil during this time of year. As a result, both Brent and WTI benchmarks posted weekly declines last week, with Brent settling 0.5% lower and WTI losing 1%. These declines were largely driven by comments from US President Donald Trump that Washington could make a deal with Tehran over the next month.
The upcoming talks between the US and Iran are scheduled to take place in Geneva on Tuesday, with both countries expected to engage in discussions over Tehran's nuclear programme. The International Atomic Energy Agency will also be present at these talks, which is likely to add an extra layer of complexity to the negotiations.
In the run-up to these talks, Iranian diplomats have been making statements about their desire for a broad economic deal with the US. According to reports, energy and mining investments, as well as aircraft purchases, are expected to be key areas of discussion between the two countries.
However, US officials have warned that they are preparing for the possibility of a sustained military campaign if the talks do not succeed. This has led to warnings from Iranian Revolutionary Guards that they could retaliate against any US military base on their territory.
The market is taking these developments seriously, with some analysts predicting that increased tensions could drive oil prices up to $80 a barrel. Conversely, fading tension would likely drop prices back down to $60 a barrel, according to SEB analysts.
Despite the ongoing tensions between the US and Iran, OPEC+ is expected to announce an increase in output from April after a three-month halt. This decision is likely to have a positive impact on oil prices, as it will help to alleviate concerns about supply disruptions.
China's continued strong crude imports are also supporting oil prices, with the country set to climb for a third straight month in February and hit a new record. This increased demand from China is expected to put upward pressure on oil prices, particularly if it continues to grow in the coming months.
The ongoing tensions between the US and Iran are having a mixed impact on oil prices, with some analysts predicting a potential surge to $80 a barrel if talks fail, while others see a drop back to $60 a barrel if they succeed.
