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US Oil Update: Futures Climb After Bullish Inventory Report, Trump Iran Rhetoric

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Crude oil futures gained over 3% in midday trading on Wednesday as a larger-than-expected draw in US crude inventories signaled tighter near-term supply conditions, while renewed geopolitical tensions in the Middle East provided further support.

Front-month West Texas Intermediate crude futures jumped 3.5% to $91.30 per barrel, while Brent futures were up 3% to $94.20/bbl.

Soojin Kim, research analyst at MUFG, said that the latest escalation threatens to prolong restrictions on traffic via the Strait of Hormuz, while declining US crude inventories underscore tightening supply conditions.

US crude oil inventories decreased by 7.2 million barrels to 426.5 mmbbls in the week ended June 5, the Energy Information Administration said in its weekly report on Wednesday.

Crude inventories are now about 5% below the five-year average for this time of year, the agency said.

The EIA said US Strategic Petroleum Reserve inventories dropped to 349.2 mmbbls for the week ended June 5, down from 357.1 mmbbls a week ago, marking a weekly decline of 7.9 mmbbls.

On the geopolitical front, Trump criticized Iranian authorities for stalling peace deal negotiations on Wednesday, saying Tehran will now have to "pay the price", without specifying what actions Washington planned to take.

Iran's Speaker of Parliament Mohammad Baqer Qalibaf said on Wednesday that any act of aggression against Tehran will be met with an immediate and decisive response.

Iranian Foreign Minister Abbas Araghchi said that the US had "opted to test our determination" despite what he described as battlefield setbacks, warning that Tehran would respond to any further attacks.

The rhetoric by American and Iranian officials follows renewed attacks between the two sides overnight, further straining a fragile ceasefire between the two sides.

The US military struck Iranian targets after Trump vowed on Tuesday to respond to the downing of an American Apache helicopter, the US Central Command said in a social media post on X.

Later in the day, US Central Command said it had struck a tanker off the coast of Oman, an attack that led to two crew members missing and one casualty, according to the UK Maritime Trade Operations.

Iran, in response, targeted several Gulf countries, with Jordan's military saying it had intercepted five Iranian missiles, while Bahrain sounded alarms and Kuwait activated its air defenses to intercept "hostile aerial targets."

Saxo Bank strategists said that the prospect of a sudden release of pent-up supply has tempered bullish sentiment and reduced the market's sensitivity to geopolitical headlines.

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