Crude oil futures rallied in after-hours trading on Wednesday, as a deepening standoff between the US and Iran over a naval blockade in the Strait of Hormuz and deadlocked peace talks heightened concerns about prolonged global supply disruptions.
Front-month West Texas Intermediate crude futures surged by 8.57% to $108.49 per barrel, while Brent futures rose 9.01% to $121.48/bbl.
US crude stockpiles dropped by 6.2 million barrels to 459.5 mmbbls in the week ended April 24, the Energy Information Administration said in its weekly report on Wednesday, amid signs of tightening supplies.
Crude inventories are now about 1% above the five-year average for this time of year, the EIA said.
Saxo Bank strategists said crude surged to record highs during this war-driven cycle, as the near-closure of the Strait of Hormuz prolongs a disruption that is tightening global energy markets.
President Trump reportedly discussed how to mitigate the impact of a possible months-long US blockade of Iran's ports with American oil firms while urging Tehran to "get smart soon" and sign a deal.
"Iran can't get their act together. They don't know how to sign a non-nuclear deal. They better get smart soon!" Trump said in a post on Truth Social.
Trump vowed to maintain the US naval blockade against Iran until Tehran agrees to a nuclear deal, noting that the blockade is more effective than the bombing.
The US and Iran have been locked in a stalemate over talks to end the Middle East conflict, as flows of crude, natural gas and oil products from the Arabian Gulf remain effectively cut off since the conflict began in February.
Meanwhile, the US naval blockade appears to be putting pressure on Iran, amid reports that the country is running out of crude storage space, which could accelerate production cuts.
US Treasury Secretary Scott Bessent said Iran's Kharg Island, the country's primary oil export terminal, is approaching storage capacity, which will likely force the government to reduce crude production and cause damage to Iran's oil infrastructure.
The latest Kpler data shows that seven vessels transited the Hormuz as of April 28, up by one from the previous day, but still well below typical volumes. Movement through the strategic waterway remains highly selective, with the majority of activity dominated by shadow fleet tankers.
On the supply side, market participants continue to assess the impact of the UAE's shock decision to leave OPEC next month.
RBC Capital Markets strategists said that with no immediate requirement for coordinated production cuts and many member states focused on rebuilding capacity, OPEC is expected to remain broadly intact in the near term.
ING strategists said that the departure during a period of significant supply disruption limits the market impact.
"Therefore, in the short term, this development has little impact on the market. But in the medium to longer term, it means more supply for the market," the analysts said.
However, OPEC+ is expected to agree to a small production hike over the weekend, despite the loss of significant exports due to the ongoing conflict and the UAE's exit, according to media reports.