By Mohi Narayan
NEW DELHI, Feb 17 (Reuters) – Brent oil prices drifted lower in Asian trade on Tuesday as investors assessed risks of supply disruption after Iran conducted naval drills near the Strait of Hormuz right ahead of nuclear talks with the U.S. later in the day.
Brent crude futures were down 0.47%, or 32 cents, at $68.33 a barrel by 0430 GMT, following a 1.33% gain on Monday.
U.S. West Texas Intermediate crude was at $63.51 a barrel, up 62 cents, or 0.99%, but the move included all of Monday’s price action as the contract did not have settlement that day due to the U.S. Presidents Day holiday.
Many markets are closed on Tuesday for Lunar New Year holidays, including mainland China, Hong Kong, Taiwan, South Korea and Singapore.
U.S. President Donald Trump said on Monday that he would be involved “indirectly” in the talks in Geneva, adding he believes Tehran wants to make a deal. At the weekend, Trump said that regime change in Iran “would be the best thing that could happen.”
“Market sentiment is closely tied to the tone and progress of these negotiations … sustaining a geopolitical risk premium in prices,” said Sugandha Sachdeva, founder of SS WealthStreet, a New Delhi-based research firm.
Oil prices are therefore likely to stay volatile, with sharp two-way swings driven by diplomatic signals rather than pure demand-supply fundamentals, Sachdeva added.
Iran began a military drill on Monday in the Strait of Hormuz, a vital international waterway and oil export route from Gulf Arab states, who have been appealing for diplomacy to end the dispute.
Iran along with fellow OPEC members Saudi Arabia, the United Arab Emirates, Kuwait, and Iraq export most of their crude via the strait, mainly to Asia.
Meanwhile, Citi said if disruptions to Russian supply keep Brent in a $65 to $70 per barrel range in coming months, OPEC+ is likely to respond by increasing output from spare capacity.
OPEC+ is leaning towards a resumption in oil output increases from April, three OPEC+ sources said, as the group prepares for peak summer demand and with prices bolstered by U.S.-Iran tensions.
“It is our base case that both Iran and Russia-Ukraine deals happen by or during the summer of this year, contributing to a decline in prices to $60-62/bbl Brent,” Citi said.
(Reporting by Mohi Narayan in New Delhi and Anushree Mukherjee in Bengaluru; Editing by Kevin Buckland)
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