Oil prices near six-month highs on concern over potential US-Iran conflict

Oil prices rose on Thursday, driven by growing concerns about potential military conflict between the U.S. and Iran as both stepped up military activity in the oil-producing Middle East. 

Brent futures were up $1.13, or 1.6%, to $71.48 a barrel at 1418 GMT, while U.S. West Texas Intermediate (WTI) crude was up $1.16, or 1.8%, at $66.35.

After advancing more than 4% on Wednesday, Brent hovered near its highest since last August, while WTI hit a six-month high.

The latest rise in prices signals a further increase to an already notable geopolitical risk premium as the world's most important oil artery again sits within striking distance of conflict, said Saxo Bank analyst Ole Hansen. About 20% of global oil supply passes through the Strait of Hormuz near Iran. 

Iranian state media reported that the country shut down the strait for a few hours on Tuesday for military drills, without making clear whether the waterway had reopened fully. It also planned to conduct a joint naval exercise with Russia on Thursday, the Iranian semi-official Fars news agency reported.

Iran issued a notice to airmen that it planned rocket launches in areas across the south of the country on Thursday from 0330 GMT to 1330 GMT, according to the U.S. Federal Aviation Administration website. 

At the same time, the U.S. has deployed warships near Iran, with U.S. Vice President JD Vance saying that Washington was considering whether it should continue diplomatic engagement with Tehran or pursue another option.

A degree of progress was made during talks in Geneva this week, but distance remained on some issues, the White House said on Wednesday, adding that it expected Tehran to come back with more details.

Meanwhile, two days of peace talks in Geneva between Ukraine and Russia ended on Wednesday without a breakthrough, with Ukrainian President Volodymyr Zelenskiy accusing Moscow of stalling U.S.-mediated efforts to end the four-year-old war.

U.S. crude and gasoline and distillate inventories fell last week, market sources said, citing American Petroleum Institute figures on Wednesday. That was contrary to expectations in a Reuters poll that crude stocks would rise by 2.1 million barrels in the week to February 13. 

Official U.S. oil inventory reports from the Energy Information Administration are due on Thursday. [EIA/S] 

(Reporting by Enes Tunagur in London. Additional reporting by Yuka Obayashi and Emily Chow. Editing by David Goodman and Mark Potter)