By: Reuters

Oil prices rose on Wednesday after the U.S. shot down an Iranian drone and armed Iranian boats approached a U.S.-flagged vessel, rekindling fears of an escalation between Washington and Tehran ahead of planned talks.

Brent crude oil futures were up 17 cents, or 0.3%, at $67.50 a barrel by 1327 GMT. U.S. West Texas Intermediate crude was up 20 cents, or 0.3%, at $63.41.

Both benchmarks have seesawed this week between news of talks to de-escalate tensions between the United States and Iran and heightened fears of potential disruption to oil flows through the Strait of Hormuz.

Meanwhile, a broader selloff of software equities, which often move in tandem with oil prices, put a lid on gains earlier in the session.

"Oil would be lower without Middle Eastern sabre-rattling," PVM analysts said in a note.
The U.S. military on Tuesday shot down an Iranian drone that "aggressively" approached a U.S. aircraft carrier in the Arabian Sea, the U.S. military said.

Separately, a group of Iranian gunboats approached a U.S.-flagged tanker north of Oman, maritime sources and a security consultancy said. The U.S. and Iran are due to hold talks in Oman on Friday, according a regional official.

OPEC members Saudi Arabia, Iran, the United Arab Emirates, Kuwait and Iraq export most of their crude via the Strait of Hormuz, mainly to Asia.

Oil prices also found support from industry data showing a sharp drop in U.S. crude stockpiles. Inventories in the world's biggest oil producer and consumer fell by more than 11 million barrels last week, sources said, citing American Petroleum Institute figures.

Official data from the U.S. Energy Information Administration is due at 1530 GMT.
Analysts polled by Reuters were expecting a rise in crude inventories.

On Tuesday, oil prices were also buoyed by a U.S.-India trade agreement that raised hopes of stronger global energy demand while continued Russian attacks on Ukraine added to concerns that Moscow's oil would remain under sanctions for longer.