Key Points
- Oil prices rose to their highest level since October on Tuesday.
- The rally was driven by rising tensions between the U.S. and Iran, a weaker dollar, and weather-related supply disruptions.
- President Trump’s comments about a U.S. “flotilla” heading to the Middle East have added a risk premium to prices.
- A severe winter storm in the U.S. has disrupted refineries and some domestic production.
Oil prices jumped to their highest level since October on Tuesday, with U.S. crude settling above $62 a barrel. The rally was driven by a combination of rising tensions between the U.S. and Iran, a weaker dollar, and ongoing supply disruptions from a severe winter storm.
President Trump added to the market’s jitters, once again talking up a growing U.S. military presence near Iran. He said a “flotilla” was on its way to the Middle East, a comment that has injected a significant “risk premium” into oil prices.
A falling U.S. dollar also helped to boost the price of oil. The greenback dropped to its lowest level in four years, which makes commodities priced in dollars, like oil, more attractive to buyers using other currencies.
In the U.S., a massive winter storm has disrupted a number of refineries on the Gulf Coast and knocked some domestic production offline. While the impact is not expected to be long-lasting, it has added to the short-term supply concerns.
The oil market has been on a rebound this year, defying the widespread expectations of a glut. Setbacks to Kazakh exports had already tightened the European market, and now the renewed focus on Iran is pushing prices even higher.
Looking ahead, traders will be watching for any further developments in the Middle East, as well as the outcome of an OPEC+ meeting this weekend, where the producer group is expected to keep its output policy unchanged.
