Oil turns higher on report U.S. sees imminent Iran strike against Israel (NYSEARCA:USO)

Crude oil futures resumed their upward march Wednesday following back-to-back daily losses, sparked in part by reports that the U.S. believes an attack on Israel by Iran and its proxies is imminent.

Futures were up and down in choppy trading after hotter than expected U.S. inflation data tempered expectations of interest rate cuts from the Federal Reserve, as well as data showing a big build in U.S. crude oil stockpiles.

Iran’s Supreme Leader Ayatollah Ali Khamenei reiterated a pledge to retaliate against Israel for last week’s strike in Syria that killed senior Iranian military officials, which he said was tantamount to an attack on Iranian territory.

“The headline that the U.S. sees a missile strike by Iran and proxies caused the market to turn around… so the market is putting the risk premium right back into the prices,” Price Futures analyst Phil Flynn said.

“Oil’s next move will now depend on the type of response from Iran” and if the potential escalation will disrupt global oil supplies, UBS analyst Giovanni Staunovo said.

UBS also raised its forecast for both Brent and WTI crude by $5/bbl from its previous estimates, saying it now sees the oil benchmarks at $85-$95/bbl and $80-$90/bbl, respectively, based on higher estimates for oil demand growth in 2024 and expectations that market conditions should allow OPEC+ to start rolling back its voluntary production cuts this summer.

Front-month Nymex crude (CL1:COM) for May delivery settled +1.1% to $86.21/bbl, and front-month June Brent crude (CO1:COM) ended +1.2% to $90.48/bbl.

ETFs: (NYSEARCA:USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (NRGU), (USOI).

Oil prices had dropped in early trading after the U.S. Energy Information Administration reported crude oil and fuel inventories increased much more than expected on weak demand and lower oil exports.

U.S. crude inventories rose by 5.8M barrels in the week ended April 5, roughly double the forecast increase, while refined products stocks rose unexpectedly with gasoline up by 700K barrels and distillate stocks by 1.7M barrels.

U.S. electricity and gasoline prices rose sharply in March, according to new data from the Bureau of Labor Statistics, with electricity up 0.9% and gasoline up 1.7%, leading the energy sector to far outpace broader inflation for the month.

Energy prices – which include electricity, gasoline, fuel oil, and other power and oil-related goods and services – jumped 1.1% in March compared to a 0.4% rise in the broader Consumer Price Index.