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US Oil Update: Futures Fall With US-Iran Talks in Focus, IEA Warns of Stockpile Drop

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Crude oil prices dropped in midday trading on Thursday as markets weighed reports that Iran's Supreme Leader ordered the country's enriched uranium to remain within its borders against the International Energy Agency's warning that oil markets could soon enter a "red zone."

Front-month West Texas Intermediate crude futures plunged by 2.16% to $96.14 per barrel, while Brent futures were down by 2.65% to $103.61/bbl.

US crude oil inventories decreased by 7.9 million barrels to 445 mmbbls in the week ended May 15, the Energy Information Administration said in its weekly report on Wednesday.

Crude oil input to refineries decreased by 80,000 barrels per day from the previous week to average about 16.3 mmb/d in the week ending May 15, while crude oil production dropped by 8,000 b/d to 13.7 mmb/d.

The EIA's weekly inventory report on Wednesday showed total US crude oil inventories, including Strategic Petroleum Reserves, fell by a record 17.78 million barrels last week, ING strategists said, adding that this highlights tightening in the US market on the back of stronger oil exports, and amid ongoing supply disruptions in the Middle East.

Iran's Supreme Leader Ayatollah Mojtaba Khamenei reportedly issued a directive ordering Iran's enriched uranium to remain in the country.

The directive by Supreme Leader Ayatollah Mojtaba Khamenei for Iran's enriched uranium to remain in the country could further complicate peace talks and frustrate President Trump's efforts to end the Middle East conflict.

"We will get it. We don't need it. We don't want it. We'll probably destroy it after we get it, but we're not going to let them have it," Trump told reporters at the White House on Thursday. The US has said a key reason for the US-Israeli alliance's conflict against Tehran was to prevent Iran from building a nuclear weapon.

"Markets continue to swing on conflicting headlines around ceasefire negotiations, with traders balancing the possibility of a near-term de-escalation against ongoing geopolitical risks," said Soojin Kim, research analyst at MUFG.

Fueling bullish sentiment, the IEA said on Thursday that global oil markets could soon enter a "red zone" as global stocks deplete and as demand picks up during the summer travel season.

IEA executive director Fatih Birol said the single most important solution to the Iran war energy shock is a full and unconditional reopening of the Strait of Hormuz.

Speaking at Chatham House, Birol said that if the Strait of Hormuz is reopened and no new oil comes online from the Middle East, an ongoing drawdown in global stockpiles, combined with demand during the summer travel season, means oil markets may enter the red zone in July or August.

Meanwhile, the Middle East conflict, now in its 12th week, has choked traffic through the Strait, keeping global energy markets tight and driving energy prices and inflation higher.

The US military has redirected 90 Iran-linked commercial vessels and disabled four others since imposing the blockade on April 13, the US Central Command said on Thursday.

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EMEA Oil Update: Crude Rises on Iran Uranium Comments, Tightening Global Stockpiles

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Oil & Energy

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