By: Economy Middle East

Oil prices extended their gains for a third consecutive session on Wednesday as renewed tensions emerged in the Middle East following a breakdown in U.S.-Iran peace talks.

As of 4:06 GMT, Brent crude futures gained 0.86 cents, or 0.90 percent, to $96.85 a barrel, while U.S. West Texas Intermediate crude rose 91 cents, or 0.97 percent, to $94.67 a barrel.

Prospects for a U.S.-Iran deal diminish

Investor attention remained centered on developments in the Middle East as prospects for a breakthrough in U.S.-Iran negotiations diminished. Israel pressed ahead with military operations in southern Lebanon, while Kuwait reported that its air defense systems had intercepted incoming missiles and drones.

Meanwhile, U.S. forces carried out strikes on Iran’s Qeshm Island, according to a post by U.S. Central Command on X. Located near the Strait of Hormuz, the island sits close to one of the world’s most critical oil transit routes, through which about 20 percent of global oil consumption is transported.

Iran’s Revolutionary Guards said they had targeted the headquarters of the U.S. Fifth Fleet, underscoring the escalating tensions between the two countries. The development came despite both Iran and the United States stating last week that they had reached a tentative understanding to end the conflict. However, the two sides have yet to formally approve or sign any agreement.

As oil prices rose, the U.S. dollar hovered just below the closely watched 160-yen threshold after briefly touching the level, with traders remaining cautious about the possibility of intervention by Japanese authorities should the currency weaken further.

Meanwhile, S&P 500 futures edged lower, although enthusiasm surrounding artificial intelligence continued to support Asian equities. Stock markets in Taiwan and Japan advanced to record highs, while South Korean markets were closed for a public holiday.

U.S. crude inventories fall by 6.8 million barrels

Recent reports indicated that communications between Washington and Tehran had slowed in recent days, even as U.S. President Donald Trump insisted that negotiations remained on track. Iranian media also questioned the likelihood of a near-term agreement, leading traders to factor a higher geopolitical risk premium into oil prices.

Meanwhile, another round of talks involving Israel and Lebanon is set to take place on Wednesday.

Providing additional support to the market, data from the American Petroleum Institute showed U.S. crude inventories fell by 6.8 million barrels in the week ended May 29, well above analysts’ expectations for a drawdown of 3.6 million barrels.

Traders are now looking ahead to official U.S. inventory data from the Energy Information Administration, due later on Wednesday, for further clues on supply conditions and the outlook for oil prices.