Oil prices climbed more than 1% on Thursday, recovering part of the sharp losses recorded in the previous session as traders continued to assess developments in peace negotiations between the United States and Iran, while tightening supply conditions and falling U.S. inventories also supported the market.
By 06:18 GMT, Brent crude futures had risen US$1.27, or 1.21%, to US$106.29 a barrel, while U.S. West Texas Intermediate crude futures gained US$1.29, or 1.31%, to US$99.55 a barrel.
Both oil benchmarks had dropped more than 5.6% on Wednesday to their lowest levels in over a week after President Donald Trump said discussions with Iran were in the “final stages,” although he simultaneously warned of further military action if Tehran failed to agree to a peace settlement.
“The oil market remains overly sensitive to Iran-related headlines, with participants continuing to pin considerable hope on reports that talks between the U.S. and Iran are progressing,” ING analysts said in a note on Thursday.
“We’ve been in this situation multiple times before, which ultimately led to disappointment,” they added, forecasting an average Brent price of US$104 a barrel during the current quarter.
Iran warned against any renewed attacks and announced additional measures reinforcing its control over the strategically important Strait of Hormuz, which remains largely closed despite previously handling oil and liquefied natural gas shipments equivalent to roughly 20% of global consumption before the conflict began.
On Wednesday, Tehran unveiled a new “Persian Gulf Strait Authority,” stating that a “controlled maritime zone” would be implemented within the Strait of Hormuz.
Iran effectively shut the waterway following the U.S. and Israeli strikes that triggered the conflict on February 28. Although most fighting has subsided since a ceasefire agreement reached in April, Iran continues to restrict shipping traffic through Hormuz while the United States maintains a blockade along Iran’s coastline.
Disruptions to supply from the key Middle Eastern oil-producing region have forced countries to draw heavily from both commercial and strategic petroleum reserves, increasing concerns over rapidly declining stockpiles.
The U.S. Energy Information Administration reported on Wednesday that the United States withdrew nearly 10 million barrels of crude oil from its Strategic Petroleum Reserve last week, marking the largest weekly drawdown ever recorded.
Additional support for oil prices came from EIA data showing a larger-than-expected decline in U.S. crude inventories last week, highlighting the impact of ongoing supply disruptions.
“The drawdown in oil inventories will make it difficult for oil prices to remain low,” said Mingyu Gao, chief researcher for energy and chemicals at China Futures.
“With the Strait of Hormuz blocked, global refined-product and onshore crude inventories are expected to fall below their lowest levels for this time of year in the past five years by late May and late June.”