By: Economy Middle east

Oil prices edged higher on Thursday as investors assessed whether talks between the United States and Iran could help prevent a military confrontation that might disrupt supplies. However, gains were limited by an increase in U.S. crude inventories.

As of 5:47 GMT, Brent crude futures rose 27 cents, or 0.38 percent, to $71.12 per barrel, while U.S. West Texas Intermediate (WTI) futures added 21 cents, or 0.32 percent, to $65.63 per barrel.

Although both benchmarks ended Wednesday little changed, Brent climbed to its highest level since July 31 earlier in the week, after Washington deployed additional military forces to the Middle East in a bid to push Iran toward negotiations over its nuclear and ballistic missile programs.

Supply fears in focus amid U.S.-Iran negotiations

Market participants are closely watching whether the U.S.-Iran negotiations can prevent a military confrontation. A prolonged conflict could threaten supplies from Iran, the third-largest crude producer in the Organization of the Petroleum Exporting Countries (OPEC), as well as from other exporters across the Middle East.

U.S. envoy Steve Witkoff and Jared Kushner are scheduled to meet with an Iranian delegation in Geneva on Thursday for a third round of discussions.

The outcome of today’s U.S.-Iran nuclear talks is expected to play a decisive role in shaping oil price movements. A positive or constructive outcome would likely lead markets to gradually pare back recent gains. However, if negotiations collapse, the upside risk for prices would persist. Even so, traders may refrain from a sharp or immediate reaction until there is greater clarity on the scope and scale of any potential U.S. action against Iran.

U.S. President Donald Trump briefly outlined his rationale for a potential strike on Iran during his State of the Union address on Tuesday, stating that he would not permit what he called the world’s leading state sponsor of terrorism to obtain a nuclear weapon.

Iran’s Foreign Minister Abbas Araqchi said on Tuesday that an agreement with the United States was “within reach,” but emphasized that progress would depend on prioritizing diplomacy.

U.S. crude inventories surge by 16 million barrels

Saudi Arabia is ramping up oil production and exports under a contingency plan designed to offset any potential supply disruptions from the Middle East in the event of a U.S. strike on Iran, two sources told Reuters on Wednesday.

Meanwhile, OPEC+  is expected to consider increasing output by about 137,000 barrels per day in April. The move would come as producers prepare for peak summer demand and seek to capitalize on price support stemming from tensions between the United States and fellow OPEC member Iran.

Capping oil’s gains, however, U.S. crude inventories surged by 16 million barrels last week, the largest build in three years, data from the Energy Information Administration showed on Wednesday. The increase far exceeded analyst expectations for a 1.5-million-barrel rise.