U.S.-Iran Standoff Boosts Geopolitical Premium, Oil Prices Surge Nearly 3%

February 28 News

On Friday, February 27, international crude oil futures closed sharply higher. The April contract for U.S. WTI crude oil settled at $67.02 per barrel, up $1.81, representing a price increase of 2.8%. The May contract for Brent crude oil settled at $72.87 per barrel, up $2.03, with a price increase of 2.9%. The lack of an agreement in U.S.-Iran nuclear talks and rising military risks are driving oil prices higher.

U.S.-Iran Talks Delayed Until Next Week; Threat of Conflict Fuels Rising Panic

On February 27, local time, the indirect nuclear talks between the United States and Iran ended without an agreement. Both sides agreed to extend the negotiations until next week, but markets remain skeptical about the likelihood of reaching a deal.

U.S. President Trump said he hopes to reach an agreement with Iran, but expressed dissatisfaction with Iran's performance in the negotiations and indicated that more talks would continue. When asked whether he would use military force against Iran, Trump stated, “I don’t want to do that, but sometimes you have no choice,” adding that no final decision has yet been made on launching a strike. These hawkish remarks have intensified market panic.

Analysts generally believe that the current market is fraught with uncertainty, and panic sentiment is driving up oil prices, with the trend entirely dependent on the outcome of the Iran nuclear negotiations and any special actions the United States might take. The market is concerned that conflicts could disrupt oil supplies in the Strait of Hormuz, and oil prices have already factored in a geopolitical premium of $8–10 per barrel, with approximately 20% of global oil supply passing through this strait.

Signals of Increased Middle East Supply Strengthen, Offset Some Upward Pressure

Recent signs of supply recovery in the Middle East are evident: Saudi Arabia and Iran are both accelerating shipments to avoid the risk of export disruptions that could result from U.S.-Iran disputes. Additionally, this weekend, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, OPEC+, will hold a video conference, with market expectations that they will likely approve a resumption of production increases starting in April. The UAE's Abu Dhabi plans to increase exports of its flagship Murban crude in April. The expectation of increased production from OPEC+ countries is putting some downward pressure on oil prices, to some extent offsetting the geopolitical premium.

Outlook for the Future

It is believed that in the short term, international crude oil prices will continue to fluctuate based on the progress of U.S.-Iran negotiations and regional geopolitical risks, with geopolitical premiums remaining the core pricing logic, and high volatility is expected to persist. The key points to watch in the coming period include: the outcome of next week's U.S.-Iran negotiations, the OPEC+ production increase decision this weekend, and whether actual exports and shipping in the Middle East are disrupted. If the situation becomes more tense, there will be further room for oil prices to rise; if the negotiations ease, the rapid decline in geopolitical premiums will put pressure on oil prices to correct.