Oil Prices Continue Uptrend as Iran Tensions and U.S. Moves in Venezuela Drive Markets

Summary:

Global oil benchmarks climbed as traders reassessed geopolitical risks linked to U.S. pressure on Iran and Washington’s increasing control over Venezuela’s oil exports, boosting prices despite expectations of persistent oversupply. ...

Oil Extends Gains on Heightened Geopolitical Risk

Oil prices rose on Friday as market participants weighed President Donald Trump’s warning to hit Iran “hard” amid unrest and his administration’s assertive actions to take charge of Venezuelan energy exports. West Texas Intermediate (WTI) climbed above $58 per barrel, while Brent hovered around $62, extending a strong rally from the previous session. The developments lifted crude prices for a weekly advance, underscoring the influence of political dynamics on energy markets.

The potential for supply disruption due to instability in Iran has directly contributed to price increases, as traders factor in the risk that unrest could affect the country’s ability to produce or export oil. At the same time, U.S. threats toward Iran add to geopolitical risk premiums embedded in crude valuations. In Venezuela, the U.S. has intensified efforts to control the country’s oil sector following its ouster of President Nicolás Maduro, prompting concerns about how this shift might impact global crude flows. These political pressures create a causal link to rising oil prices, as markets respond to the risk that supply could tighten unexpectedly.

Market Technical Factors Support Upward Move

Beyond geopolitics, the annual rebalancing of commodity index funds is anticipated to channel cash back into oil, supporting bullish sentiment. Such technical factors can correlate with price momentum when portfolio adjustments increase demand for futures contracts, adding upward pressure on benchmarks.

Investors are also digesting U.S. actions in Venezuela, where nearly 20 oil executives from major companies were scheduled to meet with the White House to discuss rebuilding the nation’s energy sector. With Maduro deposed, Trump is encouraging U.S. oil majors to lead the revival of Venezuela’s oil production, though participation remains uncertain. Chevron, already active under U.S. permission, is exporting Venezuelan crude at the fastest rate in months, primarily to domestic refiner Phillips 66. This policy stance suggests Washington is actively seeking to redirect Venezuelan oil supply toward U.S. interests, potentially at the expense of traditional buyers like China.

Oversupply Remains a Downward Constraint

Despite the recent gains, analysts caution that a significant global oil surplus will likely limit sustained price increases. Firms such as Goldman Sachs note strong bearish sentiment among clients, reflecting expectations that structural oversupply driven by rising output outside geopolitically sensitive regions will counterbalance short-term gains from risk premiums. Consequently, while political developments have a causal effect on near-term price movements, fundamental supply and demand dynamics may moderate the rally later in the quarter.

The reconfiguration of Venezuelan oil flows also has implications for buyers worldwide. Trading companies like Trafigura and Vitol are reportedly in discussions with U.S. refiners about acquiring Venezuelan crude under new U.S. Treasury licenses, indicating a shift in supply relationships. Chinese refiners, historically significant purchasers of Venezuelan oil, are exploring alternative heavy crudes, including from Iran and Russia, as shipments from Venezuela to Asia have declined. This adjustment reflects a correlation between U.S. policy actions and global crude sourcing decisions, as nations adapt to evolving export patterns.

In summary, the recent extension in oil prices is driven by a combination of heightened geopolitical risk and technical market factors, while a structurally oversupplied market continues to exert downward pressure. The interplay of these forces suggests that prices may remain elevated in the short term due to risk premiums, but medium-term trajectories will depend on how supply fundamentals evolve and whether geopolitical tensions escalate or ease.

Source: Bloomberg

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