Oil climbs to $63.45 after Iran shoots down U.S. drone

Oil rose after Iran said it shot down a U.S. spy drone in its airspace, stoking Middle East tensions further after the attack on two tankers last week, while a more dovish stance from the Federal Reserve lifted financial markets.

Futures climbed as much as 3.3 percent in New York. The reported drone downing follows a missile strike by Yemeni rebels overnight on Saudi Arabia.

The Fed’s readiness to lower interest rates for the first time since 2008 boosted stock markets and weakened the dollar, spurring demand for commodities priced in the U.S. currency. Oil also gained after U.S. government data showed inventories declined by 3.1 million barrels last week, more than analysts had estimated.

Crude spiked as much as 4.5 percent a week ago after two oil tankers were attacked near the Strait of Hormuz, with the U.S. and Saudi Arabia blaming Iran for the assault. Still, swelling American inventories and a deepening U.S.-China trade war have dented the demand outlook and weighed on prices over the past two months. Washington and Beijing are set to resume talks next week at the G-20 summit in Osaka.

“Geopolitics is helping oil bulls to make a spectacular come-back after a few days’ of directionless trading,” said Tamas Varga, an analyst at PVM Oil Associates Ltd. in London.

West Texas Intermediate for July delivery, which expires Thursday, surged as much as $1.77 to $55.53 a barrel on the New York Mercantile Exchange and traded at $55.28 as of 10:33 a.m. London time. The more-active August contract traded 3.2 percent higher at $55.68.

Brent for August settlement rose $1.63 to $63.45 a barrel on London’s ICE Futures Europe Exchange. Prices closed 0.5 percent lower at $61.82 on Tuesday. The global benchmark crude traded at a $7.73 premium to WTI for the same month.