-- Crude oil futures soared in midday trading on Wednesday, extending gains from the previous session, as the standoff between the US and Iran raised concerns over further supply disruptions in the Middle East.
Front-month West Texas Intermediate crude futures jumped 7.05% to $107.02 per barrel, while Brent futures surged 7.33% to $119.41/bbl.
US crude stockpiles dropped by 6.2 million barrels to 459.5 mmbbls in the week ended April 24, the Energy Information Administration said in its weekly report on Wednesday, amid signs of tightening supplies.
Crude inventories are now about 1% above the five-year average for this time of year, the EIA said.
Saxo Bank strategists said crude surged to record highs during this war-driven cycle, as the near-closure of the Strait of Hormuz prolongs a disruption that is tightening global energy markets.
President Trump is reportedly considering extending the US naval blockade of Iranian ports as it carries less of a risk for Washington than resuming hostilities or walking away from the Middle East conflict, which has roiled global energy markets.
Trump threatened Iran on Wednesday, saying the country "better get smart soon". "Iran can't get their act together. They don't know how to sign a non-nuclear deal. They better get smart soon!" Trump said in a post on Truth Social.
Soojin Kim, research analyst at MUFG, said that although Trump said Iran had asked for the blockade to be lifted during negotiations, reports suggest the US is preparing for a prolonged blockade of Iranian ports.
On the supply front, the US President has asked US energy firms about ways to mitigate the impact of a potentially months-long blockade of Iranian ports, raising concerns that disruptions to Middle Eastern supplies could be prolonged.
The US naval blockade appears to be putting pressure on Iran, amid reports that the country is running out of crude storage space, which could accelerate production cuts.
US Treasury Secretary Scott Bessent said Iran's Kharg Island, the country's primary oil export terminal, is approaching storage capacity, which will likely force the government to reduce crude production and cause damage to Iran's oil infrastructure.
"Iran is also facing growing storage constraints that could force deeper production cuts, while the US continues tightening sanctions on Chinese refiners linked to Iranian oil," Kim said.
Meanwhile, market participants continue to assess the impact of the shock decision to leave OPEC next month. ING strategists said that the departure during a period of significant supply disruption limits the market impact.
"Therefore, in the short term, this development has little impact on the market. But in the medium to longer term, it means more supply for the market," the analysts said.