Oil prices rose sharply on Wednesday, climbing more than 4% to their highest levels in over two months, driven by escalating geopolitical tensions in the Middle East and a bullish U.S. inventory report. Brent crude settled at $69.77 a barrel, up $2.90 or 4.34%, while U.S. West Texas Intermediate crude gained $3.17, or 4.88%, to settle at $68.15.
The rally was sparked by news that the U.S. is preparing to evacuate its embassy in Iraq due to growing security risks, with military families potentially being pulled from Bahrain as well. Iran added to the geopolitical anxiety, threatening to strike U.S. bases if nuclear talks collapse. The surprise announcement caught traders off guard and injected a strong risk premium into oil markets.
In addition to geopolitical pressures, U.S. crude inventories fell by 3.6 million barrels last week to 432.4 million barrels, a steeper draw than the 2 million barrels analysts had forecast. Gasoline demand also picked up sharply, with product supplied rising by 907,000 barrels per day to 9.17 million bpd — a sign of strengthening consumer activity.
Market sentiment was further boosted by signs of progress in U.S.-China trade negotiations. President Trump announced a pending deal involving Chinese rare earth exports and U.S. education visas, which he said would require final approval from both him and President Xi Jinping. The prospect of an agreement between the world’s two largest economies lifted hopes for improved global growth and energy demand.
The potential for lower U.S. interest rates also supported prices. Inflation data for May came in softer than expected, increasing the likelihood that the Federal Reserve could begin cutting rates by September — a move that would stimulate economic activity and fuel consumption.