Oil prices surged on Thursday after Iran shot down a U.S. military drone, triggering fears of an armed conflict in the Middle East, which would potentially disrupt oil supplies.
U.S. benchmark West Texas Intermediate crude for July delivery jumped 2.89 U.S. dollars, or 5.4 percent, to settle at 56.65 dollars a barrel on the New York Mercantile Exchange.
The rate marked the largest one-day dollar and percentage gain for a front-month contract since Dec. 26, 2018 and highest finish since May 29, according to Dow Jones Market Data.
Meanwhile, Brent crude for August delivery bounced 2.63 dollars, or 4.3 percent to close at 64.45 dollars a barrel on the London ICE Futures Exchange, notching the highest finish since May 31.
Iran's Islamic Revolution Guards Corps on Thursday announced that its air force downed "a U.S. RQ-4 Global Hawk spy drone" when it entered Iran's airspace near Mobarak Mountain region in southern coastal Hormozgan province.
U.S. President Donald Trump described the shootdown of the drone as a big mistake.
"Iran made a very bad mistake," Trump told reporters at the Oval Office, adding that the U.S. drone was shot down by someone "loose and stupid."
The news also sent oil stocks higher, with the S&P 500 energy sector up 2.21 percent, the best-performing group.
This incident further inflamed the ongoing tensions between Washington and Tehran over the attack on two oil tankers last week in the Gulf of Oman as well as Iran's threats to not comply with the 2015 Iran nuclear deal.
Although both the Trump administration and Iranian government have repeatedly claimed that they do not seek conflict, analysts remain worried that unintended incidents and miscalculations between Washington and Tehran might ultimately trigger a military conflict.
"Markets are likely to price a risk premium into oil prices amid heightened U.S.-Iran tensions and broader supply pressures," analysts at UBS said in a note on Thursday.
Researchers at the investment forecast Brent crude at 70 dollars a barrel and 67 dollars a barrel in six and 12 months, respectively.
Oil prices on Thursday were also boosted by a larger-than-expected decline in U.S. crude inventories and the prospect of prolonged supply cuts by the Organization of the Petroleum Exporting Countries (OPEC) and its allies.
U.S. crude oil inventories decreased during the week ending June 14, the U.S. Energy Information Administration said in a report on Wednesday.
According to the Weekly Petroleum Status Report, U.S. commercial crude oil inventories, excluding those in the Strategic Petroleum Reserve, decreased by 3.1 million barrels from the previous week. Analysts polled by S&P Global Platts expected a decline of 2 million barrels in crude inventories, on average.
The OPEC and its allies are expected to meet on July 1 and 2, discussing whether to extend a pact on cutting 1.2 million barrels per day of production that expires this month.