Oil prices climbed nearly 2% Wednesday, rebounding from a steep early-week decline as U.S. inventory data pointed to robust fuel demand and markets weighed the stability of a tenuous ceasefire between Israel and Iran. Brent crude futures rose $1.22, or 1.8%, to $68.36 a barrel, while U.S. West Texas Intermediate gained $1.25, or 1.9%, to $65.62.
The rally follows a 13% slump earlier in the week, triggered by easing supply fears after President Donald Trump announced a truce between Israel and Iran. Brent had previously closed at its lowest level since June 10, while WTI hit a low not seen since June 5.
Government data released Wednesday provided fresh support for prices. U.S. crude inventories dropped by 5.8 million barrels last week, compared to analyst expectations for a 797,000-barrel draw, according to the Energy Information Administration. Gasoline inventories fell by 2.1 million barrels, defying expectations for a 381,000-barrel increase, while gasoline supplied-a proxy for demand-rose to its highest level since December 2021.
"We are looking at big draws across the board," said Phil Flynn, senior analyst at Price Futures Group. "This type of report can refocus on U.S. supply and demand, and less on geopolitics."
Still, tensions in the Middle East remain a key concern. Israeli Prime Minister Benjamin Netanyahu declared the conflict with Iran over, asserting, "Iran will not have a nuclear weapon." However, U.S. intelligence officials assessed that recent Israeli strikes only delayed Iran's nuclear program by several months.
On Tuesday, Israeli defense forces reported intercepting two Iranian drones and accused Tehran of launching a ballistic missile in breach of the ceasefire. Retaliatory Israeli airstrikes followed. President Trump responded to the developments, stating, "I'm not happy with Iran either, but I'm really unhappy with Israel going out this morning."
Geopolitical risks in the Strait of Hormuz-where roughly 20 million barrels of oil transit daily-remain elevated. Concerns over disruptions to this strategic chokepoint continue to influence market sentiment.
Meanwhile, market expectations for a Federal Reserve rate cut later this year added to bullish momentum. A rate reduction could stimulate economic activity and, in turn, oil demand. "Oil prices will likely consolidate at around $65-70 per barrel," said Tina Teng, an independent market analyst, citing the combination of U.S. economic indicators and Fed speculation.
