U.S. crude oil inventories posted a big drop last week as imports declined and refineries took in more oil: EIA report
U.S. Central Command said it and the Saudi Arabian Armed Forces had launched "precision strikes" against militias backed by Iran in Iraq.
Oil prices were extending earlier gains on Wednesday after President Donald Trump said the U.S. would order heavy strikes after Iran targeted American forces in the Middle East with ballistic missiles overnight.
The West Texas Intermediate contract for September delivery (CL.1) (CLU26) rose 7.5% to $85.22 a barrel, snapping a three-session losing streak. The global benchmark has risen 21% so far this month, according to FactSet data.
Brent Crude's September contract (BRN00) (BRNU26) gained 8% to trade at $90.85, on pace for its best day in nearly a week. The most-active October contract (BRNV26) advanced around 7.1%, to $87.96 a barrel, more than 20.5% higher this month.
Another leg higher in oil prices comes as recent developments in the Middle East conflict have raised the risk of returning to a "full war," Peter Sidorov, senior international economist at Deutsche Bank, said on Wednesday.
"In market terms, the move is less about a fresh oil shock from nowhere and more about the removal of any immediate diplomatic relief premium," said Patrick Munnelly, market strategist at Tickmill Group.
U.S. Central Command confirmed on Tuesday that it and the Saudi Arabian Armed Forces had launched "precision strikes" against "Iran-aligned terrorists" in Iraq. The move came after Iran's Islamic Revolutionary Guard Corps allegedly directed around 30 drone attacks at U.S. forces at a military base in Jordan and at Saudi energy infrastructure over the past three days.
All missiles were successfully intercepted, according to Centcom.
Trump said on Wednesday morning he would order heavy strikes on Iran in retaliation for its attack on U.S. forces. "We'll be hitting them hard. They're going to get a beating," he said during an interview with Fox News.
Iraq's Popular Mobilization Forces, an umbrella group containing militias supported by Iran, said in a statement on Wednesday that at least 20 of its fighters had been killed and 32 others injured in the strikes on its bases. The group called the attack "an extremely serious escalation and a violation of Iraq's sovereignty."
Iraqi Prime Minister Ali al-Zaidi canceled his planned trip to Saudi Arabia following the strikes, according to a report by Shafaq, a news outlet based in Baghdad.
As a result, crude oil supply concerns have risen again this week as renewed U.S. and Iranian military strikes threaten vital energy infrastructure and key shipping lanes such as the Strait of Hormuz and Bab el-Mandeb.
Also adding to supply fears is the continued decline in oil stockpiles in the U.S. Commercial crude oil inventories in the U.S., not considering those in the Strategic Petroleum Reserve $(SPR)$, decreased by 7.2 million barrels to 404.5 million barrels in the week ending July 24, according to the Energy Information Administration $(EIA)$.
Crude stocks were expected to have fallen by just 600,000 barrels last week, according to a Wall Street Journal survey of analysts.
"Super-sized refining margins continue to encourage refiners to run as hard as possible, resulting in a solid draw to crude inventories, despite ongoing SPR releases and exports remaining in check," said Matt Smith, director of commodity research at Kpler.
Higher refinery runs on the U.S. Gulf Coast and a dip in crude imports helped account for 6.5 million barrels of the total 7.2 million draw. In other words, local refiners are rapidly processing domestic crude rather than relying on foreign barrels.
"Cushing inventories drew again, plundering closer to critically low levels," Smith told MarketWatch on Wednesday.
Myra P. Saefong contributed
-Isabel Wang -Nora Redmond