Why Oil Prices Jumped 5% on Wednesday

Crude oil prices jumped sharply Wednesday, reversing a weeks-long trend of declines, amid rising tensions in the Middle East and falling U.S. inventories.

Western Texas Intermediate (WTI) were up 5% in recent trading at more than $78 per barrel, as market participants assessed the impact of the assassination of a Hamas leader in Iran. The news added to the geopolitical risks in an already unstable major oil producing region.

However, the gains may be short-lived. “Overnight developments and elevated geopolitical risk merely provide temporary reprieve for oil benchmarks. Unless oil and gas infrastructure is hit, the latest spike is unlikely to last,” Gaurav Sharma, an independent oil analyst, told Reuters.

Also providing price support, U.S. commercial crude oil inventories fell by 3.4 million barrels for the week ending July 26, the Energy Information Administration said Wednesday. Inventories, at 433.0 million barrels, are now 1.5% lower than a year ago and 4% below their five year average.

Major OPEC+ News Not Expected

Traders aren’t expecting any big announcements from Thursday’s OPEC+ meeting. The energy bloc earlier agreed to extend production cuts to 2025 but phase out the 2.2 million barrels per day voluntary cuts beginning in October.

Despite today’s gains, WTI is still down since the beginning of July when it traded above $84 per barrel. Oil prices have trended lower in recent weeks due to weakening demand, especially from China.