Oil jumped more than 3% to above $63 a barrel on Thursday after Iran shot down a U.S. military drone, raising fears of a military confrontation between Tehran and Washington.
Also supporting oil were expectations that the U.S. Federal Reserve could cut interest rates at its next meeting, stimulating growth in the world’s largest oil-consuming country, and a drop in U.S. crude inventories.
Brent crude, the global benchmark, was up $1.38 at $63.20 a barrel at 0854 GMT, having risen 3.3% to $63.88 earlier in the session.
U.S. West Texas Intermediate crude rose $1.45 to $55.21.
“It’s a combination of factors,” Petromatrix analyst Olivier Jakob said of the price rise. “You have more supportive stocks data, the Fed indicating they will cut rates and the shooting down of the drone.”
The drone was downed in international airspace over the Strait of Hormuz by an Iranian surface-to-air missile, a U.S. official said. Iran’s Revolutionary Guards said the drone was flying over southern Iran.
Tension has been rising in the Middle East, home to over 20% of the world’s oil output, after attacks on two tankers near the Strait of Hormuz, a chokepoint for oil supplies. Washington blamed Tehran for the tanker attacks.