Oil futures edged lower during Friday's trading session but maintained positions close to their highest levels in six months, as market participants weighed escalating geopolitical risks against fundamental supply data. The benchmark Brent crude contract declined by 19 cents to settle at $71.47 per barrel, while U.S. West Texas Intermediate (WTI) fell 14 cents to $66.29. Despite the daily retreat, both benchmarks were poised to register weekly advances of approximately 5.3%, marking their first positive week in three.
Geopolitical Risk Premium Returns
The market's resilience stems from renewed geopolitical anxieties centered on the Middle East. Former U.S. President Donald Trump recently issued a ten-day ultimatum to Iran regarding its nuclear program, threatening unspecified consequences. In response, Iran announced plans for joint naval exercises with Russia, keeping the strategic Strait of Hormuz—a conduit for about one-fifth of global seaborne oil trade—firmly in focus. This has reintroduced a tangible risk premium into oil pricing.
"The market is rallying on expectations that something is going to happen," noted Andrew Lipow of Lipow Oil Associates. Analysts described the trading environment as cautious. Phil Flynn of Price Futures Group characterized the sentiment as being "caught in between" anticipation and denial, while Saxo Bank's Ole Hansen labeled it a "wait-and-see day."
Fundamental Support from Inventory Data
Solid fundamental data provided a floor for prices. The U.S. Energy Information Administration reported a substantial 9.0 million barrel drawdown in commercial crude inventories for the latest week, bringing total stockpiles to 419.8 million barrels. This places inventories about 5% below the five-year average for this time of year. The report also showed a decline of 3.2 million barrels in gasoline stocks and a 4.6 million barrel drop in distillate fuels. Refinery utilization held steady at 91% of capacity.
Supporting the bullish inventory data, figures from the Joint Organizations Data Initiative (JODI) indicated Saudi Arabian crude exports fell to 6.988 million barrels per day in the most recent month, their lowest level since September. Over the past four weeks, total U.S. petroleum product supplied, a proxy for demand, averaged 21.2 million barrels per day, representing a 4.1% increase from the same period last year.
OPEC+ Maintains Production Discipline
On the supply side, the OPEC+ alliance announced that eight participating producers would postpone scheduled output increases for March. The group has scheduled a follow-up meeting for March 1 to evaluate compliance and overall market conditions. OPEC+ noted that up to 1.65 million barrels per day of production could be restored, either partially or in full, should market dynamics permit. This maintained supply discipline has helped underpin the market rally.
Market structure reflected the heightened uncertainty, with increased activity in call options—contracts that give buyers the right, but not the obligation, to purchase futures at a set price. A surge in call buying often signals traders are acquiring insurance against a potential sharp price spike.
Market Outlook and Key Catalysts
Analysts caution that the current price strength is primarily driven by near-term risk factors rather than longer-term supply-demand balances. A rapid de-escalation of U.S.-Iran tensions could erase the recent geopolitical premium almost as swiftly as it appeared, particularly following this week's steep rally. Attention is now shifting to the next set of U.S. weekly inventory numbers due on February 25 and the upcoming OPEC+ gathering. Any new developments from the Iran negotiations could trigger significant volatility before those events.
The supply cushion available from OPEC+ members could eventually temper bullish momentum once the initial fear subsides. If additional supply returns to the market later in the year, focus is likely to shift back toward demand trends and the broader economic outlook.
