Oil prices gained more than 1% on Wednesday after reports of Israel preparing a strike on Iranian nuclear facilities raised fears that a conflict could upset supply availability in the key Middle East producing region.

Brent futures for July rose 68 cents, or 1.04%, to $66.06 a barrel, by 0630 GMT. U.S. West Texas Intermediate crude futures for July climbed 70 cents, or 1.1%, to $62.73.

New intelligence obtained by the United States suggests that Israel is preparing to strike Iranian nuclear facilities, CNN reported on Tuesday, citing multiple U.S. officials familiar with the matter.

It was not clear whether Israeli leaders have made a final decision, CNN added, citing the officials.

"Such an escalation would not only put Iranian supply at risk, but also in large parts of the broader region," said ING commodities strategists on Wednesday.

Iran is the third-largest producer among the members of the Organization of the Petroleum Exporting Countries and an Israeli attack could upset flows from the country.

There are also concerns Iran could retaliate by blocking oil tanker flows through the Strait of Hormuz choke point in the Gulf, through which Saudi Arabia, Kuwait, Iraq and the United Arab Emirates export crude oil and fuel.

The U.S. and Iran have held several rounds of talks this year over Iran's nuclear programme, with U.S. President Donald Trump reviving a campaign of stronger sanctions on Iranian crude exports to compel them to give up their nuclear aspirations.

Despite the discussions, U.S. officials and the Iranian Supreme Leader Ayatollah Ali Khamenei made comments on Tuesday indicating both sides remain far from a resolution.

"There are indirect nuclear talks between the U.S. and Iran, which, if successful, could give the market further upside. However, these talks appear to be running out of steam," the ING analysts said.

Still, there were some signs of improving crude supply. U.S. crude oil stocks rose last week while gasoline and distillate inventories fell, market sources said, citing American Petroleum Institute figures on Tuesday.

Crude stocks in the U.S., the world's biggest oil consumer, rose by 2.5 million barrels in the week ended May 16, the sources said on condition of anonymity.

Investors are looking ahead to government U.S. oil stock data from the Energy Information Administration later on Wednesday.

Also, Kazakhstan's oil production has risen by 2% in May, an industry source said on Tuesday, an increase that defies pressure from OPEC+ on the country to reduce its output.

Source: Investing.com