Oil rebounds as Iran uncertainty restores geopolitical premium

Oil prices have rebounded sharply after recent losses as uncertainty surrounding US-Iran relations puts a geopolitical premium back into crude markets.

West Texas Intermediate rose 2.6% to US$88.74 a barrel, while Brent gained 3.3% to US$95.82.

The move came despite rising US crude, petrol and diesel inventories, suggesting geopolitical developments remain the dominant short-term driver.

Oil had fallen heavily earlier in the month as expectations of a potential diplomatic breakthrough reduced fears of supply disruption.

That optimism has since faded somewhat.

For Australia, stronger oil prices have mixed implications.

Higher crude can support earnings for major producers and the broader energy sector, but it can also increase petrol and freight costs and complicate the inflation outlook.

That matters particularly after the Reserve Bank lifted the cash rate to 4.85% earlier this month.

With oil still moving sharply on political headlines, the energy market remains one of the most important external risks for Australian inflation and equities heading into the end of the year.