Oil prices edged higher on Wednesday after reversing early losses, as investors weighed the risk of further military escalation between the United States and Iran against fresh diplomatic efforts to end the conflict.
Brent crude futures climbed 82 cents, or 0.8 percent, to $104.42 a barrel at 0510 GMT. US West Texas Intermediate (WTI) crude gained 50 cents, or 0.5 percent, to $96.59, recovering from an earlier decline.
The rebound came a day after Brent settled at its lowest level in nearly four weeks, as hopes of progress in talks to end the wars in Ukraine and Iran encouraged traders to reassess the risk premium built into oil prices.
Uncertainty over Washington’s next move has kept markets particularly sensitive to developments in the Middle East. The US carried out what it described as defensive strikes on Iran’s Qeshm island on Tuesday, targeting surface-to-air missile systems allegedly used against American assets.
However, US officials indicated that the strikes were limited in scope and did not signal a return to large-scale military operations. President Donald Trump also told the Financial Times that Washington had no immediate plans to launch further attacks on Iran.
The mixed signals have made it difficult for investors to determine where the conflict is heading.
“President Trump’s conflicting signals, with military strikes continuing alongside statements downplaying further escalation, have made it difficult for traders to build strong directional conviction,” said Priyanka Sachdeva, head of market insights at Phillip Nova.
She said some investors were justified in booking profits and reducing speculative positions after oil’s strong rally in October. However, the risks to global supplies had not gone away.
A key concern remains the Strait of Hormuz, a critical route for global oil shipments, where any disruption could tighten supplies and push prices higher.
Diplomatic efforts are also continuing. Qatar has stepped up mediation to prevent further escalation following the US midterm elections, although a senior Iranian official told Reuters that Tehran and Washington remained far from reaching an agreement to end the war.
Political developments in Washington have added another layer of uncertainty, with Democrats securing majorities in both chambers of Congress, limiting Trump’s Republicans’ control during the remainder of his second term.
US inventory data offers support
Beyond geopolitics, the latest US inventory figures provided another reason for oil prices to recover.
Crude stocks fell by 5.27 million barrels in the week ended October 30, according to figures from the American Petroleum Institute (API) cited by market sources on Wednesday.
The decline was significantly larger than expected. Eight analysts polled by Reuters had forecast an average increase of around 880,000 barrels.
Gasoline inventories, meanwhile, increased by 1.43 million barrels, while distillate stocks, which include diesel and heating oil, dropped by 1.19 million barrels.
Haitong Futures said the data were broadly supportive of oil prices, pointing to tight diesel inventories despite the increase in gasoline stocks.
Investors were awaiting the more closely watched figures from the US Energy Information Administration (EIA), due at 1530 GMT on Wednesday, for further clues about domestic fuel demand and supply conditions.
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