Oil prices have edged up more than 3% to above $63 a barrel after Iran forces shot down a US military drone using a surface-to-air missile.

Brent crude increased $1.38 at $63.20 a barrel, while US West Texas Intermediate crude rose $1.45 to $55.21 a barrel, Reuters reported.

The drone was downed in international airspace over the Strait of Hormuz. This increased fears of a military confrontation between Tehran and Washington.

Oil prices also gained support on expectations that the US Federal Reserve could cut interest rates at its next meeting, which is set to stimulate growth in the country. Furthermore, a larger-than-expected decline in US crude stocks gave a boost to oil prices.

The Energy Information Administration said that crude stocks in the country slipped by 3.1 million barrels last week, which is against analyst expectations for a draw of 1.1 million barrels.

Petromatrix analyst Olivier Jakob was quoted by Reuters as saying: “It’s a combination of factors. You have more supportive stocks data, the Fed indicating they will cut rates and the shooting down of the drone.”

Following attacks on two oil tankers near the Strait of Hormuz, tension has been increasing in the Middle East. Tehran was blamed by Washington for the tanker attacks.

This week, the Organization of the Petroleum Exporting Countries and members including Russia agreed to meet on 1-2 July to decide on extending a deal on cutting 1.2 million barrels per day of production. The deal is set to come to an end in June.