Oil prices extended gains on Tuesday as heightened concerns surrounding Iran and potential supply disruptions outweighed the prospect of increased crude supply from Venezuela.
Brent futures rose 22 cents, or 0.3%, to $64.09 a barrel by 0430 GMT, hovering near a two-month high struck in the previous session. US West Texas Intermediate crude climbed 23 cents, or 0.4%, to $59.73.
"The price increase comes amid intensifying protests in Iran, raising the possibility of some form of intervention by the US," ING commodities strategists said on Tuesday.
Iran, one of the biggest producers of the Organization of the Petroleum Exporting Countries, is facing its biggest anti-government demonstrations in years, drawing a warning from US President Donald Trump of possible military action over lethal violence against protesters.
Trump is expected to meet senior advisers on Tuesday to discuss options on Iran, a US official told Reuters.
The US president said on Monday that any country that does business with Iran will be subjected to a tariff rate of 25% on any business conducted with the United States. Iran exports much of its oil to China.
"With the US and China having reached a trade truce, we question whether the US would want to rock the boat again with additional tariffs on China," the ING strategists said.
The political developments matter for oil markets as Iran is a major sanctioned producer and any escalation could disrupt supply or add a geopolitical risk premium.
"Unrest in Iran has added about $3-4/barrel in geopolitical risk premium in oil prices, in our view," Barclays said in a note.
Markets are also grappling with concerns of additional crude supply hitting the market due to Venezuela's anticipated return to exports. Following the ouster of President Nicolas Maduro, Trump said last week the government in Caracas is set to hand over as much as 50 million barrels of oil subject to Western sanctions to the US.
Global oil trading houses have emerged as early winners in the race to control Venezuelan crude flows, getting ahead of US energy majors.
Elsewhere, geopolitical tensions escalated as Russian forces launched attacks on Ukraine's two largest cities early on Tuesday, Ukrainian officials said.
In the United States, the Trump administration renewed its attacks on the Federal Reserve, underscoring concerns in markets about the central bank's independence and adding to uncertainty about future economic conditions and oil demand.
