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US Oil Update: Crude Settles Higher as Houthi Attacks Deepen Supply Risk Fears

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Crude futures settled higher in after-hours trading on Thursday as escalating Middle East hostilities and threats to commercial shipping by Yemen's Houthis heightened global supply fears.

Front-month West Texas Intermediate crude futures rallied 6.4% to $92.536 per barrel, while Brent futures soared by 6.9% to $100.65/bbl.

US commercial crude oil inventories increased by 2 million barrels to 411.7 mmbbls in the week ended July 17, the Energy Information Administration said in its weekly report on Wednesday.

Crude inventories are now about 6% below the five-year average for this time of year, the EIA said

Gelber & Associates said that the narrative of low US crude inventories is adding support, leaving prices highly sensitive to further military action or signs of de-escalation.

On Thursday, President Trump said that the US will punish Iran for any ship attacks by the Houthis, after the group targeted two Saudi Arabian vessels in the Red Sea, extending the Middle East conflict to a second major shipping chokepoint.

"If they do this again, the US will hold Iran responsible, in that the Houthis are a surrogate and/or proxy of Iran, and major military punishment will be inflicted upon Iran and, of course, the Houthis themselves," Trump said in a social media post on Truth Social.

The US President's remarks followed Houthis' attack on two Saudi Arabian oil tankers, the Encelia and the Layla, in the Red Sea. The attack triggered a fire on the Encelia, while several other tankers altered course or suspended transits through the vital Bab el-Mandeb Strait.

The US Central Command also completed its 12th consecutive night of attacks on Iranian targets on Wednesday, hours after Trump said the US would destroy an Iranian bridge or power plant each time Iran attacks a ship in the Strait of Hormuz.

US forces struck Iranian military targets including maritime capabilities, missile and drone storage facilities, coastal surveillance sites, and air defense assets, Centcom said in a post on X, adding that over 50,000 US service members are operating across the Middle East.

Iran, in response, said it attacked US missile systems, weapons and fuel storage sites in Jordan, as well as US military posts in Kuwait.

Meanwhile, Iran's Islamic Revolutionary Guards Corps said an oil tanker caught fire after an explosion while attempting to follow a mined route in the southern area of the Hormuz near the coast of Oman and that two others had turned back.

Kpler strategists said that with pressure building on both major export corridors, market attention is shifting from concerns over excess supply to the growing risk of prompt crude tightness.

Saxo Bank strategists said that the US-Iran conflict escalated further, with Centcom launching fresh strikes on Iranian military targets on Wednesday night and both sides playing down the prospect of near-term talks.

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