Oil hit four-month highs on surprise US stock draw and Iran tensions

Crude oil futures advanced to their highest levels in four months on Wednesday, buoyed by heightening geopolitical friction in the Middle East, a surprise drawdown in US inventories, and a weakening dollar.

Brent crude settled up 83 cents, or 1.23%, at $68.40 a barrel.

WTI climbed 82 cents, or 1.31%, to $63.21 a barrel. 

Market sentiment tightened after the US issued a sharp ultimatum to Tehran, warning that refusal to negotiate on nuclear terms would precipitate a response "far worse" than previous engagements. Tehran’s immediate rejection of the warning prompted traders to price in a renewed geopolitical risk premium.

Bullish momentum was further bolstered after the Energy Information Administration (EIA) reported a 2.3 million-barrel contraction in US crude stockpiles for the week ended 23 January – much larger than analyst expectations of a 1.8 million-barrel build.

Physical supply remains constrained in the US following severe winter storms. Domestic oil outputs were estimated to be down by 4%, as operators work to restore frozen infrastructure. Meanwhile, delays continued at Kazakhstan’s Tengiz field, where a return to full capacity may extend beyond the initial one-week projection.

Broader macro dynamics provided a final layer of support. The US Federal Reserve held interest rates steady on Wednesday citing solid growth, while the dollar hovered near four-year lows, increasing the appeal of dollar-denominated commodities for international buyers.

Written by: Aiman Haikal