By Sam Li and Siyi Liu
BEIJING/SINGAPORE, May 21 (Reuters) – Oil prices gained more than 1% on Thursday, paring previous losses as investors monitored peace talks between the United States and Iran, while supply tightness and U.S. inventory drawdowns provided some support.
Brent crude futures rose $1.27, or 1.21%, to $106.29 a barrel by 0618 GMT, and U.S. West Texas Intermediate futures were up $1.29 cents, or 1.31%, at $99.55.
Both benchmarks dropped more than 5.6% on Wednesday to their lowest in more than a week after President Donald Trump said talks with Iran were in the final stages, but also threatened further attacks if Tehran did not agree to a peace deal.
“The oil market remains overly sensitive to Iran-related headlines, with participants continuing to pin considerable hope on reports that talks between the U.S. and Iran are progressing,” ING analysts said in a note on Thursday.
“We’ve been in this situation multiple times before, which ultimately led to disappointment,” they added, forecasting an average Brent price of $104 a barrel in the current quarter.
Iran warned against further attacks and unveiled steps entrenching its control of the crucial Strait of Hormuz, mostly closed, though before the war it had carried oil and liquefied natural gas shipments equal to about 20% of global consumption.
On Wednesday, Iran announced a new “Persian Gulf Strait Authority,” saying there would be a “controlled maritime zone” in the Strait of Hormuz.
Iran effectively closed the strait in response to the U.S. and Israeli attacks that started the war on February 28. Most of the fighting has stopped since an April ceasefire, but while Iran is limiting traffic through Hormuz, the U.S. has blockaded its coastline.
Supply losses from the key Middle Eastern producing region because of the war have forced countries to pull from their commercial and strategic inventories at a rapid rate, raising concerns about draining them.
The U.S. Energy Information Administration said on Wednesday the country withdrew nearly 10 million barrels of oil from its Strategic Petroleum Reserve last week for its biggest drawdown on record.
Underlining the impact of the supply disruptions in was EIA data showing a bigger-than-expected decline in U.S. crude oil inventories last week.
“The drawdown in oil inventories will make it difficult for oil prices to remain low,” said Mingyu Gao, chief researcher for energy and chemicals at China Futures.
“With the Strait of Hormuz blocked, global refined-product and onshore crude inventories are expected to fall below their lowest levels for this time of year in the past five years by late May and late June.”
(Reporting by Sam Li in Beijing and Siyi Liu in Singapore; Editing by Christian Schmollinger, Jamie Freed and Clarence Fernandez)
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