Oil extends gains as Middle East talks stall, hostilities flare

By Jeslyn Lerh

SINGAPORE, June 3 (Reuters) – Oil prices rose over 1% on Wednesday, extending gains from the previous session, as hostilities in the Middle East erupted anew and talks between Tehran and Washington showed little progress. 

Brent futures gained $1.56, or 1.6%, to $97.56 a barrel at 0640 GMT, while U.S. West Texas Intermediate (WTI) crude climbed $1.61, or 1.7%, to $95.37.

Both benchmarks settled at a one-week high in the previous session.

Iran launched ballistic missiles towards regional neighbours Kuwait and Bahrain but failed to hit targets, the U.S. military said, adding that American forces conducted strikes on Iran’s Qeshm Island in response.

“The stalling in the U.S.-Iran negotiations and IEA warnings of critical global low stock levels are adding upward layers in risk premium in benchmark prices,” said Emril Jamil, a senior analyst for oil at LSEG.

Global oil inventories could hit critical levels ahead of the peak summer demand period if stock draws continue at their current pace, the head of the International Energy Agency’s oil industry and markets division said on Tuesday.

Traders awaited diplomatic developments after Iranian media reported on Tuesday that Tehran is reviewing a proposed agreement with Washington to halt the conflict.

Iran has not communicated with the U.S. for a few days, according to the reports, though Trump said negotiations had been going on continuously.

ANZ bank senior commodity strategist Daniel Hynes said any efforts to reopen the Strait of Hormuz face challenges as Iran has mined large portions of the vital waterway.

“There has been a slight tick up in vessels attempting the journey, but total transits remain significantly below pre-conflict levels,” Hynes said.

More than three months after the U.S. and Israel launched strikes against Iran, the conflict is stuck in a stalemate, with a shaky ceasefire in place.

On the supply side, U.S. crude oil inventories fell for a seventh straight week last week, according to market sources citing American Petroleum Institute data released on Tuesday.

Crude stocks declined by 6.8 million barrels in the week ended May 29, the sources said.

U.S. government data on stockpiles is due at 10:30 a.m. ET (1430 GMT) on Wednesday.

(Reporting by Nicole Jao in New York and Jeslyn Lerh in Singapore; Editing by Cynthia Osterman and Kevin Buckland)