By Stephanie Kelly
LONDON, May 21 (Reuters) - Oil prices rose over 1% on Thursday after Reuters reported that Iran's Supreme Leader has issued a directive that the country's near-weapons-grade uranium should not be sent abroad.
The report, which cited two senior Iranian sources, signalled that Iran was hardening Tehran's stance on one of the main U.S. demands at peace talks. Ayatollah Mojtaba Khamenei's order could further frustrate U.S. President Donald Trump and complicate talks on ending the U.S.-Israeli war on Iran.
Brent crude futures gained $1.39, or 1.3%, to $106.41 a barrel by 1037 GMT, and U.S. West Texas Intermediate futures rose $1.56, or 1.6%, to $99.82. Both were trading lower before the report.
Both benchmarks dropped around 5.6% on Wednesday to their lowest in more than a week after Trump said talks with Iran were in the final stages.
Pakistan stepped up diplomatic efforts on Thursday to hasten the peace talks between the U.S. and Iran, as Tehran said it was reviewing Washington's latest responses. Trump suggested he could wait a few days for "the right answers" from Tehran but was also willing to resume attacks on the country.
"We’ve been in this situation multiple times before, which ultimately led to disappointment," ING analysts said in a note on Thursday, forecasting an average Brent price of $104 a barrel in the current quarter.
Iran warned against further attacks and unveiled steps entrenching its control of the crucial Strait of Hormuz, which remains mostly closed. Before the war the strait had carried oil and liquefied natural gas shipments equal to about 20% of global consumption.
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Economic activity in the euro zone shrank at its sharpest rate in more than two-and-a-half years in May as a war-driven surge in living costs hammered demand for services across Europe and firms accelerated layoffs, surveys showed on Thursday.
DRAWDOWNS IN STOCKPILES
On Wednesday, Iran announced a new "Persian Gulf Strait Authority", saying there would be a "controlled maritime zone" in the Strait of Hormuz.
Iran effectively closed the strait in response to the U.S. and Israeli attacks that started the war on February 28. Most of the fighting has stopped since an April ceasefire, but while Iran is limiting traffic through Hormuz, the U.S. has blockaded its coastline.
Supply losses from the key Middle Eastern producing region because of the war have forced countries to tap their commercial and strategic inventories at a rapid rate, raising concerns about draining them.
The U.S. Energy Information Administration said on Wednesday the country withdrew nearly 10 million barrels of oil from its Strategic Petroleum Reserve last week for its biggest drawdown on record. U.S. crude inventories also fell by more than expected last week, according to EIA data.
"Oil prices have remained relatively contained despite the scale of the Middle East disruption," said Kim Fustier, senior global oil and gas analyst at HSBC. A pullback in Chinese buying, as well as a surge in Atlantic Basin exports led by the U.S. and rapid draw on inventories and strategic stockpiles "has eased immediate availability concerns and narrowed some of the extreme physical dislocations seen earlier in the crisis," she said.
(Reporting by Stephanie Kelly in London, Sam Li in Beijing and Siyi Liu in Singapore; Editing by Clarence Fernandez, Emelia Sithole-Matarise and Susan Fenton)
