RoydadNaft –  Oil prices edged slightly higher on Thursday as investors assessed whether US-Iran negotiations could avert a military confrontation that risks disrupting supply, although the gains were limited by a surge in US crude inventories.

According to Roydad Naft, Brent futures traded at $71.06 per barrel at 07:20 GMT on Thursday, up 21 cents or 0.3 per cent. WTI futures rose 16 cents or 0.2 per cent to $65.58 per barrel.

While Brent and WTI closed almost unchanged on Wednesday, Brent reached its highest level since 31 July on Monday, after Washington deployed military forces in the Middle East to pressure Iran into negotiations to end its nuclear and ballistic missile programmes.

Toshitaka Tazawa, an analyst at Fujitomi Securities, said: “Investors are focused on whether the US-Iran talks will prevent a military conflict.”

He added: Even if hostilities begin, if the objectives are limited and the conflict short-lived, WTI prices would likely rise temporarily above $70 per barrel before returning to the $60–65 range.

A prolonged conflict could disrupt oil supply from Iran – OPEC’s third-largest producer – and other Middle Eastern exporters.

US envoy Steve Witkoff and Jared Kushner are scheduled to meet an Iranian delegation on Thursday in Geneva for the third round of talks.

Analysts at ING wrote in a note on Thursday: “The outcome of the US-Iran nuclear negotiations today will determine the direction of oil prices… A constructive solution would likely allow the market to gradually remove up to $10 per barrel of the current risk premium that we believe is priced in.”

They added: “In the event of a breakdown in talks, the risk of higher prices remains, but the market may not fully react until the scale of any potential US action against Iran becomes clear.”

US President Donald Trump, in his State of the Union address on Tuesday, briefly referred to the possibility of striking Iran, stating that he would not allow a country he described as the world’s leading sponsor of terrorism to acquire nuclear weapons.

Iran’s Foreign Minister Abbas Araghchi said on Tuesday that an agreement with the United States was “within reach, but only if diplomacy is prioritised”.

Saudi Arabia is increasing its oil production and exports as part of a contingency plan in case a potential US attack on Iran disrupts Middle Eastern supply, two informed sources said on Wednesday.

OPEC+ (including OPEC members and allies such as Russia) is likely to consider raising oil output by 137,000 barrels per day for April, according to three sources familiar with OPEC+ views. The group is preparing for peak summer demand and seeking to capitalise on price gains driven by US-Iran tensions (Iran being an OPEC member).

The rise in US crude inventories prevented further oil price increases; data from the Energy Information Administration showed that US crude stocks rose by 16 million barrels last week – the largest increase in three years and far exceeding the 1.5 million barrel rise forecast in a Reuters poll.