Oil prices spiked in early Asian trade on Wednesday, erasing a significant portion of Tuesday’s selloff on the back of renewed hostilities in the Middle East and a bullish U.S. inventory report from the API.
At the time of writing, Brent crude had climbed to $87.95 per barrel, up 4.59%, while West Texas Intermediate was trading at $82.89, up 4.58%.
Oil prices had been tumbling since the U.S. brought an end to 13 consecutive nights of attacks on Iran last Thursday, with both sides playing up hopes of a diplomatic breakthrough.
Those hopes were significantly hindered late on Tuesday when U.S. Central Command (CENTCOM) reported that Iranian forces launched multiple ballistic missiles at U.S. bases across the Middle East in what it described as a surprise attack. All incoming missiles were successfully intercepted, and no U.S. positions were hit.
CENTCOM then reported that the U.S. and Saudi forces carried out “precision strikes” against “multiple terrorist logistics and weapons sites across eastern Iraq.”
While the U.S. did not strike any targets within Iran, the renewed fighting does end the short-lived pause in hostilities that had seen the geopolitical risk premium unwind somewhat.
Adding to the upward pressure on prices was another sizeable draw in U.S. crude inventories. The American Petroleum Institute reported that U.S. crude stockpiles fell by approximately 3.3 million barrels last week, while the SPR released 3.7 million barrels to hit its lowest level since March 1983. Gasoline inventories rose by 918,000 barrels while distillate stocks increased by 355,000 barrels.
Going forward, traders will be watching any further military escalation closely while keeping an eye on the EIA’s inventory report due out later today. If the EIA confirms a crude draw or if further strikes take place in the Middle East, we can expect prices to continue climbing.
As has been the case since the Iran war started, volatility appears to be the only certainty in oil markets today, and it is showing no sign of stopping any time soon.
By Josh Owens for Oilprice.com
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