Crude futures settled higher in after-hours trading on Wednesday as escalating Middle East hostilities and hardline rhetoric from President Trump stoked fears of global supply disruptions.
Front-month West Texas Intermediate crude futures rallied 6.7% to $84.60 per barrel, while Brent futures advanced 7.6% to $90.51/bbl.
US crude oil inventories dropped by 7.2 million barrels to 404.5 million barrels last week, the Energy Information Administration said on Wednesday. Crude inventories were about 7% below the five-year average for this time of year, the EIA said.
Macquarie strategists had expected a 2.5-mmbbl draw for the week ended July 24.
Trump reportedly said that Iran "is going to get a beating" after the Islamic Revolutionary Guard Corps launched ballistic missiles at US military.
His remarks follow reports that the IRGC targeted a US airbase and command center in Jordan with ballistic missiles, as Middle East hostilities escalate after a recent pause in hostilities.
Iranian media also report an attack has occurred in an area near the Piranshahr border in northwestern Iran.
On Tuesday, US and Saudi forces struck "multiple terrorist logistics and weapons sites" in eastern Iraq, in retaliation for over 30 drone attacks in the past three days by "Iran-aligned terrorists."
Earlier on Tuesday, Saudi Arabia's Defense Ministry said that drones launched from Iraq by "Iran-affiliated terrorist militias" attempted to target petroleum facilities in the Gulf state.
The US Treasury sanctioned two Iranian companies that charge for safe passage through the Strait of Hormuz and eight tankers linked to Iranian oil exports on Wednesday, alleging that the IRGC-backed network was operating an extortion scheme.
Treasury's Office of Foreign Assets Control said the sanctions target the Persian Gulf Marine Insurance Company and HormuzSafe Marine Services Authority, which allegedly force vessels to buy mandatory maritime "insurance" to transit Hormuz.
Soojin Kim, research analyst at MUFG, said the renewed escalation has restored a geopolitical risk premium to oil prices, with ongoing disruptions around Hormuz likely to keep markets volatile despite continuing diplomatic efforts.
Meanwhile, the US Federal Reserve on Wednesday held its key interest rate steady in a range between 3.5% and 3.75%.
Gelber & Associates strategists said traders were closely watching the US Federal Reserve interest rate decision, with improving risk sentiment across broader financial markets providing an additional tailwind for energy prices.
Meanwhile, traffic through the Middle East energy chokepoints remains restricted, with Kpler data showing 12 and 41 confirmed crossings in the Hormuz and Bab el-Mandeb on July 28, respectively.
The US Central Command said it has redirected 18 commercial vessels, disabled two, and boarded two as of July 28.
Meanwhile, in its latest decision on Wednesday, the Fed kept interest rates unchanged at 3.50%-3.75%. While the decision was widely expected, the central bank's assessment of solid economic growth offered modest support to the oil demand outlook, although geopolitical tensions remained the dominant driver of crude prices.