A staff of the West Qurna-1 oilfield
A staff of the West Qurna-1 oilfield, which is operated by ExxonMobil, is seen at the West Qurna-1 oilfield, Iraq. Image Credit: Reuters

Singapore: Oil rose after Iran said it shot down a US spy drone in its airspace, stoking Middle East tensions further after the attack on two tankers last week, while a more dovish stance from the Federal Reserve lifted financial markets.

Futures climbed as much as 4.6 per cent in New York. The reported drone downing follows a missile strike by Yemeni rebels overnight on Saudi Arabia. The Fed’s readiness to lower interest rates for the first time since 2008 boosted stock markets and weakened the dollar, spurring demand for commodities priced in the US currency. Oil also gained after US government data showed inventories declined by 3.1 million barrels last week, more than analysts had estimated.

Crude spiked about 4.5 per cent a week ago after two oil tankers were attacked near the Strait of Hormuz, with the US and Saudi Arabia blaming Iran for the assault. Still, swelling American inventories and a deepening US-China trade war 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.

“Geopolitics is helping oil bulls to make a spectacular comeback after a few days’ of directionless trading,” said Tamas Varga, an analyst at PVM Oil Associates Ltd. in London.

Brent for August settlement rose $1.90 to $63.72 a barrel on London’s ICE Futures Europe Exchange. Prices closed 0.5 per cent lower at $61.82 on Tuesday. The global benchmark crude traded at a $7.46 premium to WTI for the same month.

West Texas Intermediate for July delivery, which expires Thursday, rose to as much as $56.21 a barrel on the New York Mercantile Exchange and traded at $56.04 as of 2:55pm London time. The more-active August contract traded 4.2 per cent higher at $56.25.

US 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.