Oil rose more than 3% toward $64 a barrel on Thursday after Iran shot down a U.S. military drone, raising fears of a military confrontation between Tehran and Washington.
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 also supported prices.
Brent crude, the global benchmark, was up $2.06 at $63.88 a barrel midday Thursday, having earlier gained 3.4% to $63.93. U.S. West Texas Intermediate crude rose $2.33 to $56.09.
“The risk of a military conflict in the Middle East has risen because of a ratcheting up of tensions between the United States and Iran,” said Abhishek Kumar of Interfax Energy in London.
“Elsewhere, the U.S. Federal Reserve has signaled its willingness to loosen monetary policy over the coming months, which is being perceived as favorable to oil demand.”
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. Iran denied any role.