Oil prices steadied after a sharp selloff erased some of the week’s earlier gains, as fears of military escalation involving Iran began to fade. Markets had surged earlier on concerns that widespread anti-government protests in Iran could disrupt crude exports from one of OPEC’s biggest producers.
Those worries peaked after U.S. President Donald Trump warned against the use of lethal force on protesters, a move that traders saw as raising the risk of U.S. intervention. But sentiment quickly shifted when Trump later played down the likelihood of military action, triggering a pullback as the geopolitical risk premium deflated.
Analysts say uncertainty remains, but its influence is waning. “The longer this goes on without U.S. intervention, the risk premium will continue to fade, allowing bearish fundamentals to dominate,” ING noted.
Adding to the pressure, the U.S. has signalled a softer stance toward Venezuela, opening the door for more oil to return to global markets. PDVSA has reportedly begun rolling back production cuts as exports resume under U.S. oversight potentially adding barrels to an already well-supplied market.
Rising U.S. crude and fuel inventories have further reinforced oversupply concerns, capping any near-term upside for prices.
For now, oil appears stuck between lingering geopolitical risks and growing supply headwinds, leaving the market cautious and directionless.
Beyond geopolitics, fundamental data is also weighing on the market. U.S. inventory figures released this week showed higher crude and fuel stockpiles, reinforcing concerns that supply continues to outpace demand.
Rising inventories are often interpreted as a sign that refiners are not drawing down crude fast enough, either due to weaker demand or ample alternative supply. In this environment, even modest increases in production from countries like Venezuela can have an outsized impact on market sentiment.
