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Oil prices steadied in Asian trade on Wednesday after surging over 4% the previous session, driven by concerns about potential supply disruptions due to the ongoing Israel-Iran conflict and an unexpected draw in U.S. oil inventories.
Brent oil futures for August fell slightly to $76.40 per barrel, while West Texas Intermediate (WTI) crude futures dropped 0.1% to $73.19 per barrel by 21:12 ET (01:12 GMT). Despite the slight pullback, prices remained close to a near five-month high, with the Israel-Iran conflict entering its sixth day.
Israel-Iran Conflict Escalates, U.S. Involvement in Focus
Israel and Iran continued to exchange strikes on Wednesday morning, with tensions showing no signs of easing. The conflict, which began after Israel targeted Iran’s nuclear facilities last week, has sparked fears that it could escalate into a broader regional conflict, potentially disrupting oil supplies from the Middle East, a crucial crude-producing region.
Concerns over U.S. involvement in the conflict also heightened, particularly after President Donald Trump called for Iran’s “unconditional surrender.” A Wall Street Journal report suggested that Trump was considering a direct strike against Iran. In response to the growing tensions, reports indicated that the U.S. had moved additional fighter jets to the region, although U.S. forces have not yet directly intervened in the conflict.
U.S. Inventory Draws Boost Optimism Despite Economic Concerns
Data from the American Petroleum Institute (API) showed a massive draw in U.S. oil inventories, which shrank by 10.13 million barrels (mb) last week, much higher than the anticipated 0.6 mb draw. The unexpected inventory reduction supported the view that U.S. fuel demand is set to increase, particularly with the onset of the summer travel season.
The API data usually precedes a similar reading from the U.S. Energy Information Administration (EIA), with official inventory data due later on Wednesday. The bullish inventory data provided a boost to oil prices, although concerns over weak U.S. economic growth lingered.
Despite the strong inventory data, soft U.S. economic indicators, including May retail sales and industrial production, missed expectations, raising worries about sluggish demand as the world’s largest fuel consumer faces high trade tariffs and potential growth challenges.
Focus Shifts to Federal Reserve’s Meeting
Market attention is also on the U.S. Federal Reserve, which is set to keep interest rates unchanged at its meeting on Wednesday. However, investors are betting that the Fed may adopt a more dovish stance in light of worsening economic conditions. Any signals from Federal Reserve Chair Jerome Powell regarding future rate cuts or policy adjustments could further influence market sentiment.
Conclusion
Oil prices remain supported by concerns over the Israel-Iran conflict and the surprise draw in U.S. oil inventories, although economic uncertainties and fears of a potential U.S. military escalation continue to keep markets on edge. The focus now shifts to the Federal Reserve’s meeting, where any indication of a shift toward more accommodative monetary policy could add volatility to oil and broader markets. As geopolitical tensions persist and economic data raises concerns, oil prices could continue to fluctuate depending on developments in both areas.
