Oil prices spiked by 3 per cent on Friday, recovering from a sharp drop the previous day, as US threats of military action against Iran and an outage at Kazakhstan's vital Tengiz oilfield stoked supply disruption concerns.
US President Donald Trump had said an “armada” of American warships was heading towards the Middle East amid mounting tensions with Tehran, raising the spectre of a confrontation between the two countries.
Anxiety was further exacerbated as Kazakhstan's Tengiz, one of the world's largest oilfields in terms of output, remained shut after a fire broke out last Sunday. Reuters on Wednesday reported that Tengiz could stay closed for up to 10 days.
Brent, the benchmark for two thirds of the world's oil, jumped 2.97 per cent to $65.96 a barrel at 6.53pm UAE time. West Texas Intermediate, the gauge that tracks US crude, leapt 3.17 per cent to $61.24 per barrel.
Crude settled 2 per cent lower on Thursday. From last Friday's close, both Brent and WTI are on pace for a gain of about 2.5 per cent for a fifth weekly gain. They are off to a strong start in 2026, up more than 8 per cent and 6 per cent, respectively, after giving up about 20 per cent in 2025.
“Oil markets in early 2026 appear stable on the surface … but this calm masks rising structural risk,” said Jennifer Considine, a senior research fellow at Saudi Arabia's King Abdullah Petroleum Studies and Research Centre.
“Price volatility over recent weeks – intraday swings of up to $4 a barrel – has been driven less by shifts in supply-demand fundamentals and more by geopolitical developments involving Iran and Venezuela,” she said.
Iran is estimated to produce about 3.3 million to 3.4 million barrels per day, which is Opec's fifth largest, with exports roughly 1.8 million to 2 million bpd.
But disrupting these supplies would “undoubtedly lead to escalating prices despite Opec spare capacity”, said Yousef Alshammari, president of the London College of Energy Economics.
Mr Trump last week held off a strike on Iran, helping ease supply concerns.
“The market currently sees a geopolitical risk premium of only [about] $3 to $5 per barrel, but the situation remains volatile, with recent de-escalation signals removing much of the immediate upward pressure on oil prices,” Mr Alshammari said.
Before Thursday's steep decline, crude prices were trading higher earlier this week after Mr Trump's threats to invade Greenland, which sent concerns it might destabilise the Nato military alliance.
Tensions ramped up after Mr Trump said over the weekend that he would impose additional tariffs on European countries that opposed his plans for Greenland.
At the World Economic Forum in Davos, however, Mr Trump walked back his invasion and tariff threats after a conversation with Nato Secretary General Mark Rutte, saying there was progress towards a deal on the Arctic.
Consultancy Deloitte, meanwhile, said that market participants expect median Brent prices in the range of $62 to $65 a barrel over the next two years, “with a gradual increase thereafter”, associate director Tamerlan Suleyman said.
Oil stockpiles in the US also declined, with inventories up by 3.6 million barrels at the end of last week, more than triple the 1.1 million barrels estimated in a Reuters poll, the US Energy Information Administration said on Thursday.
Tension between the US and Venezuela, as well as wobbly peace negotiations between Russia and Ukraine, have also impacted the movement of oil prices and sentiment on supply.
Markets are also keeping an eye on the US Federal Reserve's monetary policy direction this year. Mr Trump has pushed for lower interest rates, arguing it would help to boost the world's largest economy.
