Oil prices rise on potential Iran supply disruption

Oil prices surged by about 3 percent on Tuesday as the prospect of disruptions to Iranian crude exports overshadowed possible increased supply from Venezuela.

Brent futures LCOc1 jumped $1.88, or 2.9 percent, to $65.75 a barrel by 11:07 am EST (1607 GMT), hovering around a three-month high. US West Texas Intermediate crude CLc1 climbed $1.79, or about 3 percent, to $61.29.

"The oil market is building in some price protection against geopolitical drivers," said PVM Oil Associates analyst John Evans, highlighting the potential exclusion of Iran's exports, trouble around Venezuela, talks on the Russia-Ukraine war and over Greenland.

Iran, one of the top producers in the Organisation of the Petroleum Exporting Countries, is facing its biggest anti-government demonstrations in years. A government crackdown against protesters drew a warning from US President Donald Trump of possible military action.

Trump said on Monday that any country that does business with Iran will be subjected to a tariff rate of 25 percent on any business conducted with the United States.

"The tariff hike would primarily affect Iranian crude flows to China and India in potentially forcing Asian customers to seek alternative barrels in propping up international crude prices," said analyst Jim Ritterbusch of Ritterbusch and Associates.

Additionally, four Greek-managed oil tankers were struck by unidentified drones on Tuesday. The tankers were in the Black Sea on the way to load oil at the Caspian Pipeline Consortium terminal off the Russian coast, eight sources told Reuters.

Worries over a supply glut have taken a backseat for now, said Rystad analyst Janiv Shah, adding that excess refinery throughput in Europe was weighing on the gasoil market.

Unrest supporting Brent’s Premium

Brent crude oil's premium to Middle East benchmark Dubai rose on Tuesday to its highest since July as geopolitical tensions in Iran and Venezuela supported the global price marker, LSEG data showed.

"Unrest in Iran has added about $3-4 a barrel in geopolitical risk premium in oil prices, in our view," Barclays said in a note.

Markets are also grappling with concern over additional crude supply hitting the market with a resumption in Venezuelan exports.

After the ousting of president Nicolas Maduro, Trump said last week that Caracas is set to hand over to the US as much as 50 million barrels of oil, subject to Western sanctions.

Global oil trading houses have emerged as early winners in the race to control Venezuelan crude flows, getting ahead of US energy majors.