Oil prices declined on Wednesday despite attacks on UAE energy infrastructure and rising geopolitical risk premiums. A substantial and unexpected increase in U.S. crude inventories emerged as a key factor counterbalancing the geopolitical pressure.

Data from the American Petroleum Institute (API) for the week ending March 13 showed U.S. crude stockpiles rose by 6.56 million barrels, significantly surpassing the Reuters poll expectation of a 380,000-barrel increase. The strong inventory data caused a noticeable shift in market sentiment. At the time of writing, Brent crude was down 1.3% at $98 per barrel, while WTI crude fell 2.6% to $93 per barrel.

Concurrently, Citigroup warned that if shipping through the Strait of Hormuz were disrupted over the next four to six weeks, global markets could lose 11 to 16 million barrels of oil per day, potentially pushing Brent crude prices to around $110 to $120 per barrel.

The fallout from the attacks in the UAE continues to develop. Geopolitical risks driving recent oil price volatility remain active, with supply disruption threats still present.

Energy facilities in the UAE have faced a series of attacks, including a drone strike on the world's largest ultra-sour gas facility, a fire in the Fujairah oil industrial zone, and damage to a tanker near the Strait of Hormuz. The Shah gas field remains shut due to a fire caused by a drone attack. The field, operated by Abu Dhabi National Oil Company in partnership with Occidental Petroleum, has a production capacity of over 1.28 billion standard cubic feet per day.

Market attention is also focused on a U.S. military precision strike on Iranian missile sites along the coast of the Strait of Hormuz. U.S. Central Command stated that U.S. forces used multiple 5,000-pound bunker-buster bombs to target the Iranian missile positions.

Andy Lipow, President of Lipow Oil Associates, suggested that while the U.S. military action using bunker-buster bombs may increase short-term oil market volatility, it could potentially create conditions for restoring safe passage through the strait.

Citigroup maintains a cautious outlook on the near-term crude market, expecting prices to remain under pressure.

The bank's base case scenario indicates that if disruptions to shipping in the Strait of Hormuz persist for four to six weeks, 11 to 16 million barrels per day of crude supply could be interrupted, potentially pushing Brent prices into a range of $110 to $120 per barrel.

Under a more extreme risk scenario, where supply disruptions are prolonged or energy infrastructure suffers wider damage, Citigroup forecasts that the average Brent price for the second and third quarters could rise to $130 per barrel, with peaks potentially touching $150. If disruptions to refined product supplies are also factored in, oil prices could even approach the $200 level.