Oil prices rise due to uncertainty over the Iran peace deal and reductions in inventory levels.

Oil prices increased slightly on Thursday, recovering some earlier losses as investors kept an eye on discussions between the U.S. and Iran. Support came from tight supply conditions and a decrease in U.S. inventories.

Brent crude futures went up by 78 cents, or 0.74%, reaching $105.80 a barrel by 0341 GMT, while U.S. West Texas Intermediate futures rose by 84 cents, or 0.85%, to $99.10. Both benchmarks fell over 5.6% on Wednesday, hitting their lowest point in over a week after U.S. President Donald Trump mentioned that negotiations with Iran were nearing completion, yet also warned of potential further strikes if Tehran did not agree to a peace settlement.

"The oil market remains highly reactive to news concerning Iran, with traders still holding onto significant hopes that discussions between the U.S. and Iran are advancing," ING analysts noted on Thursday. They added, "We've experienced this scenario multiple times before, which usually resulted in disappointment," predicting an average Brent price of $104 per barrel for the current quarter.

Iran has issued warnings against additional attacks and has declared measures to solidify its control over the vital Strait of Hormuz. Before the conflict, this strait facilitated oil and liquefied natural gas shipments that accounted for roughly 20% of global consumption, but it has largely been shut off now.

On Wednesday, Iran introduced a new "Persian Gulf Strait Authority," stating that a "controlled maritime zone" would be established in the Strait of Hormuz. Iran effectively closed the strait following U.S. and Israeli attacks that ignited the war on February 28. Although most combat has ceased since an April ceasefire, Iran is restricting traffic through Hormuz while the U.S. has imposed a blockade along its coastline.

The war has led to supply losses in the crucial Middle Eastern region, prompting countries to rapidly deplete their commercial and strategic reserves, raising alarm about depletion rates. The U.S. Energy Information Administration reported on Wednesday that nearly 10 million barrels of oil were withdrawn from the Strategic Petroleum Reserve last week, marking the largest drawdown ever recorded.

Evidence of the supply disruptions in the Middle East was highlighted by EIA data, which showed a larger-than-anticipated drop in U.S. crude oil inventories last week. "The reduction in oil inventories will make it challenging for oil prices to stay low," remarked Mingyu Gao, chief researcher for energy and chemicals at China Futures. "With the Strait of Hormuz closed, global inventories of refined products and onshore crude are projected to fall below their lowest levels for this time of year in the past five years by late May and late June," Gao added.