Crude oil futures tumbled in midday trading on Thursday after President Trump said he had canceled planned military strikes on Iran, easing immediate concerns over potential supply disruptions from the Middle East.
Front-month West Texas Intermediate crude futures fell 3.03% to $87.43 per barrel, while Brent futures retreated 3.14% to $90.18/bbl.
Trump said on Thursday he canceled planned military strikes against Iran, just hours after the US President had vowed to hit Tehran "very hard" and threatened to seize the country's oil infrastructure.
Trump said that "discussions" were "brought to the highest level of Iranian leadership" surrounding peace negotiations to end the Middle East conflict. He said that a "time and place of the signing" would "be announced shortly," without providing further details.
Bjarne Schieldrop, chief commodities analyst at SEB Research, said Trump has been posting for two months that a deal is imminent, but there has been no significant progress in the peace talks since the ceasefire started in early April.
The US President also said that the US naval blockade of the Strait of Hormuz "will remain in full force and effect until this transaction is finalized." The strategic waterway handles about 20% of global oil and gas shipments.
He said on Thursday that the US would hit Iran very hard tonight, while threatening to seize Iran's Kharg Island, the country's crude export terminal, "at some point in the not-too-distant future."
Iran struck several US military facilities in Kuwait and Bahrain, including Ali Salem and Ahmad al-Jaber air bases in Kuwait and Sheikh Issa air base in Bahrain, on Thursday. Tehran also carried out missile and drone attacks against US vessels operating in the Hormuz.
The country's Persian Gulf Strait Authority announced the closure of the Strait, including for oil tankers and commercial ships, on Thursday, saying that vessels attempting to pass will come under fire. The strategic waterway handles about 20% of global oil and gas shipments.
Additionally, ING strategists said the latest inventory data from the Energy Information Administration show that the US oil market continues to tighten, with crude inventories falling by 7.23 million barrels over the last week, marking the seventh consecutive week of declines.
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 that 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.