Crude futures surged in midday trading on Wednesday, extending gains for a third straight session, after a flare-up in the Middle East conflict stoked renewed concerns over potential supply disruptions amid continued closure of the Strait of Hormuz.
Front-month West Texas Intermediate crude futures gained 2.55% to $96.08 per barrel, while Brent futures rose 2.09% to $98.03/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.
Earlier on Wednesday, the US and Iran traded military strikes again 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 on Wednesday said it had 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.
"US forces successfully defeated multiple Iranian ballistic missiles and drones, and conducted self-defense strikes on Qeshm Island in response to attempted attacks by Iran across the Middle East," Centcom said.
Meanwhile, conflicting messages about peace talks have fueled volatility in energy markets.
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.
The prolonged closure of the 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.