Oil prices are poised to achieve their most significant monthly gains in years on Friday, driven by escalating tensions in the Middle East regarding a potential U.S. attack on Iran, which could threaten supplies from one of the largest OPEC producers. Brent crude futures declined by 21 cents, settling at $70.50 a barrel by 0139, following a 3.4% increase that marked its highest close since July 31 on Thursday. The March contract is set to expire later on Friday. The more active April contract decreased by 37 cents, settling at $69.22. U.S. West Texas Intermediate crude experienced a decline of 39 cents, settling at $65.03 a barrel, following a previous increase of 3.4% that brought it to its highest level since September 26.

Both benchmarks are poised to record their inaugural monthly increase in half a year, with Brent rising over 16% to achieve its most significant monthly rise since January 2022. WTI is poised to increase by over 14% in January, marking its most significant monthly gain since July 2023. Tensions have intensified in light of a U.S. military buildup in the Middle East. U.S. President Donald Trump on Wednesday called on Iran to engage in negotiations regarding its nuclear weapons program, warning that failure to do so could result in a military response from the United States. This statement elicited a strong warning from Tehran, indicating a readiness to retaliate decisively. This has resulted in an increased risk premium being incorporated into the price of oil as traders account for potential disruptions to Iranian exports or flows through the Strait of Hormuz,” noted market analyst Tony Sycamore.

This week in Washington, the Trump administration is convening senior defense and intelligence officials from Israel and Saudi Arabia for distinct discussions regarding Iran, as reported. U.S. officials indicate that Trump is currently assessing his alternatives, yet a decision regarding a potential strike on Iran remains unmade. JPMorgan analysts led by Natasha Kaneva noted that, in light of elevated inflation and the upcoming mid-term elections, protracted oil supply disruptions are not anticipated. “If military action does occur, we expect it to be targeted, avoiding Iran’s oil production and export infrastructure.” Citi anticipates that the United States and Israel will engage in measured responses towards Iran in the short term, which may involve constrained U.S. actions and the seizure of oil tankers, assigning a 70% likelihood to this scenario. Disruptions in Kazakhstan, Russia, and Venezuela have collectively impacted supply by 1.5 million barrels per day in January, according to analysts. Additionally, the Arctic wave in the U.S. is projected to decrease crude and condensate output by 340,000 bpd this month.

Kazakhstan announced on Wednesday that it would be gradually restarting operations at the expansive Tengiz oilfield, with the objective of achieving full production within a week. This decision follows three unexplained electrical fires earlier this month that affected an output of 7.2 million barrels of oil. Adverse weather conditions have adversely impacted Russian oil exports, while Venezuela has been compelled to reduce production following the ousting of President Nicolas Maduro by U.S. forces earlier this month. The interim government of the country sanctioned a comprehensive overhaul of its principal oil legislation on Thursday. The Trump administration has significantly relaxed sanctions on Venezuela’s oil sector as of Thursday, a move that may enhance the country’s oil and gas production while attracting investment opportunities.