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US Oil Update: Crude Jumps After Large Inventory Draw, US-Iran Clashes

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Crude oil futures settled higher in after-hours trading on Wednesday after US-Iran clashes stoked fears of supply disruptions in the Middle East, while a sharp draw in US crude stockpiles signaled tightening fundamentals.

Front-month West Texas Intermediate crude futures climbed 2.60% to $96.20 per barrel, while Brent futures advanced 1.20% to $96.97/bbl.

US crude inventories dropped amid strong export and refining demand as the Middle East conflict entered its fourth month. Crude stockpiles decreased by 8 million barrels to 433.7 mmbbls in the week ended May 29, the Energy Information Administration said in its weekly report on Wednesday.

US Strategic Petroleum Reserve inventories fell to 357.1 mmbbls, down from 365.1 mmbbls a week ago, marking a weekly decline of 8 mmbbls.

The agency said that inventories are now about 3% below the five-year average for this time of year.

Soojin Kim, research analyst at MUFG, said crude prices rose for a third consecutive session as growing doubts over a US-Iran peace agreement and renewed regional tensions heightened concerns about prolonged supply disruptions.

Iran said on Wednesday that communication with the US has not been severed and that messages have been exchanged over the need to halt Israeli "aggression" against Lebanon, but no tangible progress has been made in talks, according to local media.

Foreign Minister Seyed Abbas Araghchi said that in the event Israel continues its strikes on Beirut, Iran's armed forces are "fully prepared" to resume hostilities and attack targets inside Israel.

On Tuesday, President Trump and Secretary of State Marco Rubio said that peace negotiations to end the Middle East conflict were ongoing, pushing back against Iranian media reports suggesting communications had broken down.

ING strategists said Trump said he remains optimistic about securing an interim agreement with Iran, but conflicting reports on the status of negotiations have added uncertainty to the market.

Meanwhile, the US and Iran traded military strikes again earlier on Wednesday as the three-month conflict is currently at an impasse, as the two sides have failed to progress their ceasefire into a more permanent peace deal.

Iran targeted the headquarters of the US Navy's 5th Fleet in Bahrain and another country in its attack, without naming Kuwait. Tehran said it launched its attack in response to the US firing a missile into the engine room of another oil tanker trying to reach its ports despite the US blockade.

The Kuwait Defense Ministry said in a social media post that it had intercepted 13 ballistic missiles and 17 drones launched from Iran into Kuwaiti airspace since dawn. The US Central Command responded with strikes on an Iranian command center on Qeshm Island in the Strait of Hormuz.

On the supply front, the prolonged closure of the Strait of Hormuz is raising concerns that the world will need to tap crude inventories further, after the International Energy Agency said global oil inventories could hit critical levels ahead of the peak summer demand period.

"Markets remain focused on the future of energy flows through the Strait of Hormuz, with delays in reaching a deal raising the likelihood that global inventories will need to be drawn down further before Gulf exports fully recover," Kim said.

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