Market News

(Bloomberg) -- Oil extended its biggest daily gain since October, on concerns that the US and Iran are inching closer to a fresh conflict.

Brent rose above $71 a barrel after adding 4.3% on Wednesday, while West Texas Intermediate traded above $65. Axios reported a major US military operation in the Middle East could begin soon and that Israel’s government is pushing for a scenario targeting regime change in the Islamic Republic.

The director of the International Atomic Energy Agency, meanwhile, said Iran has discussed a potential return of inspectors to nuclear sites, but that it hinges on a broader nuclear agreement.

A potential war would put flows at risk from a region that pumps about a third of the world’s oil. However, US President Donald Trump risks angering voters ahead of mid-term elections this year if a spike in crude prices makes gasoline more expensive at the pump.

“The failure to resolve core areas of contention continues to tip the scales in favor of another military confrontation,” RBC Capital Markets analysts including Helima Croft said in a note. “The massive buildup of US military assets in the region as well as the recent Iranian naval exercise in the Strait of Hormuz seem to suggest that the launch sequence for a second military conflict has commenced.”

Talks between the two sides so far have been inconclusive, with Tehran saying it reached a “general agreement” with Washington on the terms of a potential nuclear deal and an US official said Iranian negotiators would return to Geneva with a new proposal in two weeks. The US also announced visa restrictions on Iranian officials and executives over a recent crackdown on protests.

The increased risk premium is also showing up in oil options markets. Bullish call options have been trading at large premiums to puts for much of this year as traders protect against the risk of a price spike, while the equivalent of 10 million barrels of Brent June $100 calls changed hands on Wednesday.