Oil set for biggest monthly gain in years on geopolitical risks

• Israel and Saudi to discuss Iran with Washington
• Dollar up as Trump to announce Fed chair pick
• US eases sanctions on Venezuela oil industry

Oil prices slipped more than 1 percent on Friday from multi-month highs, though they are set for their most substantial gains in years, as the risk premium surged due to a potential US attack on Iran that could disrupt supplies.

Brent crude futures fell 91 cents to $69.80 a barrel at 03:32 GMT after rising 3.4 percent to close at its highest point since July 31 on Thursday. The March contract expires later on Friday. The more active April contract slid $1.07 to $68.52.

US West Texas Intermediate crude dropped $1.06 to $64.36 a barrel after gaining 3.4 percent to settle at its highest level since September 26 in the previous session.

Prices eased after last night’s rally as anticipation of a possible attack on Iran and a blockage of the Strait of Hormuz has yet to materialise, said LSEG senior analyst Anh Pham.

Tensions have escalated due to a US military buildup in the Middle East. US President Donald Trump urged Iran on Wednesday to make a deal on nuclear weapons or face attack. Tehran responded by saying it would strike back hard.

The dollar rose on Friday, paring a weekly slide, after Trump said he would soon announce his nominee to head the Federal Reserve and on optimism that lawmakers in Washington would avoid a government shutdown.

Both oil benchmarks are set to record their first monthly gains in six months, with Brent up 14.7 percent to notch its biggest jump since January 2022. WTI is on track to rise 12 percent in January, its biggest monthly gain since July 2023.

The Trump administration is hosting senior defence and intelligence officials from Israel and Saudi Arabia for separate talks on Iran this week in Washington, according to two people familiar with the matter. US officials say Trump is reviewing his options but has not decided whether to strike Iran.

“Given elevated inflation and this year’s midterm elections, we do not anticipate protracted oil supply disruptions,” JPMorgan analysts led by Natasha Kaneva said in a note.

“If military action does occur, we expect it to be targeted, avoiding Iran’s oil production and export infrastructure.”

Citi expects the US and Israel to take restrained actions against Iran in the near term, including oil tanker seizures; it cited a 70 percent probability for this outcome.

Disruptions in Kazakhstan, Russia and Venezuela affected a combined 1.5 million barrels per day (bpd) of supply in January, JPMorgan analysts said, adding that the Arctic wave in the US is estimated to reduce crude and condensate output by 340,000 bpd this month.

On Wednesday, Kazakhstan said it was restarting the huge Tengiz oilfield in stages, aiming to reach full production in a week after three unexplained electrical fires earlier this month impacted 7.2 million barrels of oil output.

Bad weather has hit Russian oil exports, while Venezuela was forced to cut production after US forces ousted President Nicolas Maduro early this month.

The country’s interim government on Thursday approved a sweeping reform of its main oil law. The Trump administration also broadly eased sanctions on Venezuela’s oil industry on Thursday, actions that could raise Venezuela’s oil and gas output and encourage investment.

Further reading:

• World oil market faces significant surplus, IEA predicts
• Shadows and skulduggery on the open seas
• Iranian businesses suffer new blow as internet blackout lingers