Oil prices gave back some of their previous session's gains during Asian deals on Thursday despite escalating attacks in the Gulf, as investors focused on supply flows through the region's key shipping routes.
By 3:15 pm AEST (5:15 am GMT), Brent crude for October delivery fell $0.47, or 0.5%, to $87.62 a barrel, while U.S. West Texas Intermediate (WTI) crude declined $0.39, or 0.5%, to $84.07 a barrel.
Brent settled 7.9% higher in the previous session, and WTI gained 6.6%, marking one of the sharpest spikes during the Iran war and reversing Tuesday's 5% decline following a pause in hostilities in the five-month conflict.
ANZ analysts said in a note to clients:
"In signs the conflict is spreading outside the region, a U.S.-owned gas storage tanker in Egypt’s Mediterranean port of Damietta was hit by drones. This comes as the Houthi rebels step up their campaign to disrupt shipping in the Red Sea."
They added: "Supply disruptions continue to force U.S. refiners to draw down stocks to make products such as petrol, diesel and jet fuel. Commercial crude oil inventories fell by 7.2mbbls last week, while the U.S. Strategic Petroleum Reserve fell by 3.8mbbls.
"The drawdown in commercial inventories was the biggest weekly fall since mid-June. It also reinforces concerns that the supply cushion is nearing its limits.
"At only 307mbbls, the SPR is at its lowest level in 40 years and is dangerously close to its operational limit of around 200mbbls."
Oil prices had surged after U.S. President Donald Trump threatened on Wednesday to hit Iran "very hard" following an Iranian missile attack on a U.S. base in Jordan on Tuesday.
On Wednesday, the United States and Saudi Arabia launched strikes against Iran-backed paramilitary forces in Iraq, marking the first time Saudi Arabia had publicly joined U.S. air strikes in retaliation for drone attacks on Saudi oil targets launched from Iraq.
The U.S. also carried out two hours of attacks on Iran on Wednesday, according to U.S. Central Command (CENTCOM), ending a pause in strikes that had begun over the weekend.
Meanwhile, data from the U.S. Energy Information Administration (EIA) showed commercial crude oil inventories, excluding the Strategic Petroleum Reserve, fell by 7.2 million barrels from the previous week, broadly in line with expectations.
At 404.5 million barrels, U.S. crude oil inventories are about 6% below the five-year average for this time of year.
