Oil Prices Drop Despite Sharp US Inventory Draw as Iran Conflict Keeps Markets on Edge

Global oil prices fell sharply on Wednesday, even as U.S. government data showed a significantly larger-than-expected draw in crude and gasoline inventories, highlighting the market’s continued focus on geopolitical risk over short-term supply fundamentals.

Benchmark Brent crude futures declined $6.26, or 5.63%, to settle at $105.02 a barrel, while U.S. West Texas Intermediate (WTI) dropped $5.89, or 5.66%, to $98.26 a barrel.

Latest Oil Prices:

WTI Crude $98.96 +0.70 +0.71%

Brent Crude $105.0 -6.26 -5.63%

Murban Crude $103.2 -4.13 -3.85%

WTI Midland $99.62 -6.11 -5.78%

Opec Basket $118.1 +1.26 +1.08%

Indian Basket $112.3 +1.58 +1.43%

Natural Gas $3.035 +0.031 +1.03%

Gasoline $3.496 +0.009 +0.26%

Heating Oil $3.956 +0.009 +0.22%

The decline came after U.S. President Donald Trump reiterated his view that the war with Iran could end “very quickly,” although investors remain skeptical amid ongoing instability in Middle East energy flows.

Market sentiment continues to be heavily influenced by disruptions linked to the conflict, which has contributed to the partial shutdown of the Strait of Hormuz, a critical artery for global oil shipments.

Despite the price drop, the latest data from the U.S. Energy Information Administration showed a steep fall in crude inventories, which decreased by 7.9 million barrels to 445 million barrels in the week ending May 15, far exceeding analyst expectations of a 2.9 million-barrel decline.

Stocks at the Cushing, Oklahoma delivery hub also fell by 1.6 million barrels, underscoring tightening physical supply conditions in key storage centers.

Refinery activity eased slightly, with crude processing down by 80,000 barrels per day and utilization rates slipping 0.1 percentage point to 91.6%.

Gasoline inventories declined by 1.5 million barrels to 214.2 million barrels, while distillate stocks,  including diesel and heating oil, rose by 372,000 barrels, contrary to expectations for a decline.

Net U.S. crude imports increased marginally by 3,000 barrels per day over the same period.

Analysts say the market remains caught between conflicting signals: tightening physical inventories on one hand, and expectations of potential diplomatic de-escalation between Washington and Tehran on the other.

According to energy analyst Toshitaka Tazawa, traders are closely watching whether the United States and Iran can reach a workable agreement, particularly given the rapidly shifting tone from Washington.

He warned that prices are likely to remain elevated due to the risk of renewed military escalation and the slow recovery of global supply even in the event of a ceasefire.

In parallel, Citigroup projected that Brent crude could surge to $120 per barrel in the near term, arguing that markets are underpricing the risk of prolonged supply disruptions.

The ongoing conflict between the United States and Iran has already led to severe disruptions in global shipping routes, including restrictions in the Strait of Hormuz, which typically carries around one-fifth of the world’s oil trade, according to the International Energy Agency.