Investing.com -- Crude oil futures surged on Wednesday, amid increasing geopolitical risks related to the advance of Iranian-backed Houthi rebels in Yemen.
Global oil prices spiked by more than a dollar on Wednesday afternoon, as reports surfaced that Saudi Arabia is moving heavy military equipment, including artillery to its border with Yemen. The buildup came in response to the seizure of the al-Anad base, a Yemen airbase that had previously been used by U.S. troops in their fight against Al-Qaeda. As the Houthi rebels advanced toward the Yemen city of Aden, there were conflicting reports that Yemen president Abed Rabbo Mansour Hadi had fled the port city on boat.
Yemen is strategically located on the Bab el-Mandab, a strait that connects the Gulf of Aden with the Red Sea. In mid-November, the Energy Information Administration (EIA) ranked the Bab el-Mandab the fourth-largest chokepoint in the world for global oil transport (3.8 million barrels per day).
Oil traders are sensitive to risky geopolitical news involving Saudi Arabia, which has 16% of the world's oil reserves and maintains the world's largest crude oil production capacity.
On the New York Mercantile Exchange, WTI crude for May delivery rose 1.74 or 3.66 to $49.25 a barrel. Crude futures spiked to a daily-high of 49.35 a barrel late in the session, before settling slightly down. Earlier on Wednesday morning, crude futures dipped to a daily low of $47.01.
The developments in Yemen offset relatively soft inventory data released on Wednesday afternoon. In its weekly report, the EIA said that U.S. crude inventories for the week ending Mar. 20, increased by 8.2 million barrels from the previous week. The increase pushed U.S. crude inventories to 466.7 million barrels, its highest level in 80 years. By comparison, inventories rose 9.6 million barrels for the week ending on Mar. 13.
Though oil prices have plunged by more than 50% since last June, they have inched forward in recent weeks. WTI Crude last week increased to an average price of $46.00 a barrel, according to the EIA, up from an average price of $44.88 a week earlier. Last year at this time, however, the average price nearly eclipsed $100 a barrel at 99.97.
On the Intercontinental Exchange (ICE), brent crude for May delivery rose 1.34 or 2.43% to $56.45 a barrel. Brent futures reached a high of $57.14, before falling slightly back at the close of trading. The spread between international and U.S. domestic benchmarks continued to tighten on Wednesday, falling to $7.10.
The U.S. dollar, meanwhile, continued its nosedive against the euro on Wednesday, falling 0.32% to 1.096 in U.S. afternoon trading. The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, dropped 0.23% to 97.20. Relatively weak data regarding declining U.S. durable goods orders for the month of February pushed the dollar down.
In recent days, speculative oil traders have used a weaker dollar to hedge their positions in crude. Last week, the dollar fell at its sharpest weekly rate against the euro in more than two years. The dollar is still up by more than 10% against the euro this year.