Oil prices continue to rise following escalating tensions between Washington and Tehran and a decline in U.S. inventories

SadaNews - Oil prices rose for the second consecutive day as geopolitical tensions resurfaced following the downing of an Iranian drone near a U.S. aircraft carrier in the Arabian Sea.

Brent crude reached around $68 a barrel after rising 1.6% during Tuesday's session, while West Texas Intermediate (WTI) remained steady near $64. The incident raised concerns in the markets; however, U.S. President Donald Trump emphasized that diplomatic negotiations are still ongoing, while White House spokeswoman Caroline Levitt confirmed that U.S.-Iranian talks are still scheduled for Friday.

Meanwhile, the American Petroleum Institute reported that crude inventories in the United States fell by 11.1 million barrels last week, which would be the largest draw since June if confirmed by the official data expected to be released on Wednesday.

In another sign of rising tensions, U.S. Central Command stated that the Iranian Revolutionary Guard "harassed" the U.S. oil tanker "Stena Imperative" as it transited the Strait of Hormuz, a vital corridor for global oil trade. The tanker is subject to the U.S. military's fuel purchase program.

Read also: Surge in oil tanker charter rates amid rising tensions over Iran and supply shortages

Sol Kafonik, senior energy analyst at MST Marquee, stated that "the skirmishes involving the drone and the tanker confirm to the market how fragile the situation is and how things can escalate without warning," estimating that the market has begun to price in a geopolitical premium of between $5 and $10 per barrel in anticipation of potential U.S. strikes against Iran.

Concerns over the outbreak of conflict in the Middle East – which represents about a third of global oil supplies – were among the reasons supporting prices last month, despite signs of ample supply. Oil is also affected by the fluctuations sweeping broader commodity markets, where gold and silver saw sharp declines before regaining some of their gains on Tuesday.

On another note, OPEC+ has forecast that global oil demand will begin to gradually recover from March or April, which may help bolster market balance, according to Russian Deputy Prime Minister Alexander Novak. The group intends to make a decision on March 1 regarding whether to resume monthly production increases after pausing them in the first quarter.