Oil Surges After Iran Shoots Down US Drone
(Bloomberg) -- Oil rose after Iran said it shot down a U.S. spy drone in its airspace, stoking Middle East tensions further after the attack on two tankers last week, while a more dovish Federal Reserve weighed on the dollar.
Futures climbed as much as 3.3% in New York. The reported drone downing follows a missile strike by Yemeni rebels overnight on Saudi Arabia. The dollar fell after the Fed said it was ready to lower interest rates for the first time since 2008. A weaker U.S. currency makes oil more attractive to investors. Prices increased earlier after U.S. government data showed crude inventories declined by 3.1 million barrels last week, more than analysts had estimated.
Crude spiked as much as 4.5% a week ago after two oil tankers were attacked near the Strait of Hormuz, with the U.S. and Saudi Arabia blaming Iran for the assault. Still, swelling American inventories and a deepening U.S.-China trade have dented the demand outlook and weighed on prices over the past two months. Washington and Beijing are set to resume talks next week at the G-20 summit in Osaka, providing a glimmer of hope for the global economy.
“Two major upcoming events -- the trade talks for the U.S. and China and OPEC+’s meeting in Vienna -- are boosting prices, helped by the shrinking American stockpiles,” Sungchil Will Yun, a commodities analyst at HI Investment & Futures Corp. in Seoul, said before the drone downing. While signals are positive, “it’s more of a wait-and-see on the outcome of those discussions for investors,” he said.
West Texas Intermediate for July delivery, which expires Thursday, surged as much as $1.77 to $55.53 a barrel on the New York Mercantile Exchange and traded at $55.34 as of 8:14 a.m. London time. Futures dropped 14 cents to $53.76 on Tuesday. The more-active August contract traded 3% higher to $55.58.
Brent for August settlement rose $1.71 to $63.53 a barrel on London’s ICE Futures Europe Exchange. Prices closed 0.5% lower at $61.82 on Tuesday. The global benchmark crude traded at a $7.96 premium to WTI for the same month.
Iran said it shot down an American drone that was spying its region and stated it would “defend Iran’s airspace and maritime boundaries with all our might.”
U.S. crude inventories fell for the first time in three weeks through June 14, according to the Energy Information Administration. Stockpiles slid more than double the median analyst estimate for a 1.25-million-barrel decline. American oil production dropped for a second week to 12.2 million barrels a day.
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