- US-Iran talks could prevent conflict and supply disruption
- Deal with US hinges on diplomacy, Iranian minister says
- US oil stocks rise and gasoline inventories fall, API data shows
LONDON, Feb 25 (Reuters) - Oil prices held near seven-month highs on Wednesday as investors weighed up the threat to oil supply from potential military conflict between the U.S. and Iran.
Brent futures were up 32 cents at $71.09 a barrel at 1426 GMT. WTI futures gained 23 cents to $65.86.
Brent prices reached their highest since July 31 on Friday while WTI hit its highest since August 4 on Monday, as the U.S. positioned military forces in the Middle East to try to compel Iran to negotiate an end to its nuclear and ballistic missile programme.
An extended conflict could disrupt supplies from Iran, the third-biggest crude producer in the Organization of the Petroleum Exporting Countries, and other countries in the key Middle East producing region.
Supporting oil prices, U.S. President Donald Trump briefly laid out his case for a possible attack on Iran in his State of the Union speech on Tuesday, saying he would not allow a country he described as the world's biggest sponsor of terrorism to have a nuclear weapon.
"The market is trying to get a sense of what's happening between the U.S. and Iran," said SEB commodities analyst Ole Hvalbye. "If we did not have any sort of escalation or harsh rhetoric between the U.S. and Iran, (Brent) oil prices would probably trade between $60 and $65 per barrel."
U.S. envoy Steve Witkoff and Jared Kushner are due to meet an Iranian delegation for a third round of talks on Thursday in Geneva.
Iranian Foreign Minister Abbas Araqchi said on Tuesday that a deal with the U.S. was "within reach, but only if diplomacy is given priority".
OPEC+ will likely consider raising its oil output by 137,000 barrels per day for April to end a three-month pause in production increases, three sources with knowledge of OPEC+ thinking said, as the group prepares for peak summer demand and tensions between the U.S. and OPEC member Iran boost prices.
Eight OPEC+ producers - Saudi Arabia, Russia, the United Arab Emirates, Kazakhstan, Kuwait, Iraq, Algeria and Oman - meet on March 1.
In a separate development, top OPEC+ producer Saudi Arabia has activated a plan for a short-term oil output and export surge in case a U.S. strike on Iran disrupts oil flows, two sources familiar with the Saudi plan told Reuters.
In the U.S., the American Petroleum Institute late on Tuesday reported a massive increase in U.S. oil stockpiles of 11.43 million barrels in the week ended February 20. Official U.S. oil inventory reports from the Energy Information Administration are due later on Wednesday.
Reporting by Stephanie Kelly in London, Katya Golubkova in Tokyo and Jeslyn Lerh in Singapore. Editing by Mark Potter and David Goodman
Source: Reuters