Oil Prices Ease From 5-Week High as Traders Weigh US-Iran Tensions

Oil prices retreated slightly on Wednesday, cooling after a sharp rally in the previous session driven by renewed military conflict between the United States and Iran. The escalation has heightened market concerns over the security of long-term crude supplies from the Middle East.

As of 7:32 AM ET, Brent crude futures for November delivery were down 0.2% at $94.48 per barrel, after earlier touching a high of $97.04. West Texas Intermediate (WTI) crude futures fell 0.8% to $89.49 per barrel. Both benchmarks had surged nearly 5% on Tuesday, reaching their highest levels in approximately five weeks.

Geopolitical Risks Intensify

The recent price spike followed an overnight escalation in which the U.S. conducted new airstrikes on Iranian targets. Iran reportedly retaliated with missile and drone attacks on U.S. forces stationed in Jordan and Bahrain, marking one of the most serious confrontations between the two nations in weeks.

Adding to supply anxieties, two supertankers carrying a combined 20 million barrels of Saudi crude were attacked by unidentified aircraft on Monday while transiting the critical Strait of Hormuz. The incidents have amplified fears that the conflict could further restrict tanker traffic through the world's most important oil chokepoint.

Supply Disruption Concerns

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Analysts are closely monitoring the potential impact on oil flows. "Although oil continues to flow through the Strait of Hormuz despite the US-Iran standoff, the escalation in tensions clearly brings risks to transit," analysts at ING wrote in a note.

The conflict has already severely impacted Iran's output. According to a Reuters report, Iranian crude loadings plummeted from around 2 million barrels per day in March to between 220,000 and 255,000 barrels per day in August.

Focus Shifts to US Inventories

Traders are also watching for fresh signals on U.S. demand and supply. Data from the American Petroleum Institute (API) released late Tuesday showed that U.S. crude inventories fell by 2.6 million barrels for the week ended August 28, reversing a 4.2 million barrel build from the prior week.

The API report also indicated a 300,000-barrel increase in gasoline stockpiles and a 300,000-barrel draw in distillate inventories. The market now awaits the more comprehensive weekly inventory report from the U.S. Energy Information Administration (EIA) due later on Wednesday for further confirmation.