Oil prices edged higher earlier this week but began to lose momentum as supply concerns faded and markets turned their attention to U.S.–Iran nuclear talks scheduled to take place in Oman.
Crude prices initially found support after Tehran and Washington remained divided over the scope of the discussions. Iran has made it clear it wants talks limited strictly to nuclear issues, while the United States is pushing to broaden the agenda to include Iran’s ballistic missile program, its support for armed groups across the region, and human rights concerns. That divide has kept geopolitical risk firmly on traders’ radar.
Despite the diplomatic effort, fears linger that President Donald Trump could still act on previous threats to strike Iran, OPEC’s fourth-largest oil producer. Any escalation could spark a wider conflict in the Middle East, raising the risk of supply disruptions well beyond Iran itself. A particular flashpoint remains the Strait of Hormuz, the narrow waterway between Oman and Iran through which nearly a fifth of global oil consumption flows.
Saudi Arabia, the UAE, Kuwait, Iraq, and Iran all ship most of their crude through the strait, meaning even a limited confrontation could have outsized consequences for global energy markets. Conversely, if talks succeed in easing tensions, oil prices could come under renewed pressure as risk premiums unwind.
Earlier price strength had been driven by expectations of tighter supply, following extreme weather disruptions in the U.S., production outages in Kazakhstan, and heightened geopolitical concerns in the Middle East.
That momentum faded amid profit-taking, a broader pullback across commodity markets, and a strengthening U.S. dollar. The dollar was on track for its strongest weekly performance since October, as investors interpreted Kevin Warsh - Trump’s nominee for the next Federal Reserve chair - as likely to adopt a less dovish stance on monetary policy.
Adding another layer of uncertainty, analysts at ING pointed to political tensions in Iraq as a potential upside risk for oil prices. Iraqi politicians are reportedly backing Nouri al-Maliki as the country’s next prime minister, a move opposed by the United States, which sees him as too closely aligned with Iran. Trump has already warned Baghdad of possible consequences should al-Maliki return to power.
Looking ahead, fuel card prices in the region are expected to rise by 0.50 - 0.70 per litre next week, reflecting recent volatility in global crude markets.
As ever, oil traders remain caught between easing supply fears and persistent geopolitical risks - a balancing act that is likely to keep price action volatile in the weeks ahead.
