Crude futures edged higher in midday trade on Thursday as markets weighed the progress in Iran and Oman talks against renewed attacks by Yemen's Houthis that underscored persistent risks to shipping via the Red Sea.
Front-month West Texas Intermediate crude futures climbed by 3.7% to $78.01 per barrel, while Brent futures advanced 4.4% to $82.94/bbl.
Gelber & Associates said an unexpected 2.5-million-barrel increase in US crude inventories is pointing to softer near-term fundamentals.
US commercial crude oil inventories increased by 2.5 million barrels to 407 mmbbls in the week ended July 31, the Energy Information Administration said in its weekly report on Wednesday. Crude inventories were about 6% below the five-year average for this time of year, the EIA said.
The agency said that US fuel prices edged lower in early August as crude oil prices declined from late July levels, while gasoline and diesel prices remained elevated compared with a year earlier.
The agency said that conventional regular gasoline fell to $3.226 per gallon on July 31, down from $3.338 the previous week, compared to $2.118 a year ago. Ultra-low sulfur diesel decreased to $4.161 per gallon from $4.233, up from $2.339 a year prior.
Fueling the rally, Yemen's Houthis launched attacks in central and eastern Yemen on Thursday, resulting in the death and injury of "hundreds" of the internationally recognized government troops.
The attack comes a day after the group attacked a Saudi oil tanker in the northern Red Sea off the coast of Yanbu.
Saxo Bank strategists said that Iran and Oman agreed overnight to establish a shipping corridor through the Hormuz, a step towards reopening the strategic waterway that raised expectations of higher Middle East energy exports.
Houthi spokesperson Yahya Saree said that the Iran-aligned militant group plans to expand operations into the northern Red Sea after alleging that Saudi tankers had begun rerouting away from the Bab el-Mandeb Strait.
Meanwhile, Iran reportedly warned Gulf states that any new US attack on its territory would trigger retaliation against critical energy infrastructure across the region.
The warning was delivered through a flurry of high-level diplomatic contacts after President Trump threatened on July 28 to strike Iran's energy network and infrastructure, according to media reports.
ING strategists said that the real hinge point is the trajectory of US-Iran discussions, because meaningful progress there is essential before disrupted energy flows can realistically resume.
Capping the gains, Iran and Oman on Wednesday reached an understanding on the geographic coordinates for a shipping route through the Hormuz, and a joint announcement is being finalized.
The two countries that border the key energy chokepoint have been negotiating a plan for the management of maritime traffic through the Strait for the past two months.