Oil prices soared on Wednesday as traders cheered a massive drop in U.S. supply while tensions with Iran heightened after President Donald Trump imposed new sanctions on the country this week.

U.S. West Texas Intermediate crude futures settled up 2.7% at $59.38 per barrel. Brent crude futures rose 2.1% at $66.42 per barrel.

The Energy Information Administration said Wednesday that U.S. crude inventories fell by 12.8 million barrels last week. Crude hit its session high after the data was released. Last week was the biggest draw down since September of 2016, when inventories fell 14.5 million barrels.

"That was one of the most bullish reports ever," said John Kilduff of Again Capital. "Domestic production ticked down, gasoline demand was strong, exports plunged, refinery utilization rose, it just had everything going for it."

"Whatever we're not using here, we're just exporting," said Andy Lipow of Lipow Oil Associate. "As our production increases, there will be more available for the world market. World oil demand continues to grow. We're supplying that increased demand as well as some of the shortfall (from Iran and Venezuela)."

Crude exports reached a record of 3.77 million barrels per day. Imports meanwhile fell to 800,000 per day.

"It's due to a significant decline in imports at the same time we exported a record amount of crude oil on the gulf coast," said Lipow.

Oil also got a boost amid simmering tensions between Iran and the U.S.

Trump signed an executive order Monday imposing new sanctions on Iran in response to the downing of an unmanned U.S. drone last week. On Wednesday, he told Fox Business Network "I hope we don't" have a war with Iran but it "would not last very long."

In addition to rising tensions with Iran, last week the East Coast's largest gasoline refinery, Philadelphia Energy Solutions, had a series of explosions that shut down operations.

The founder of Oil Price Information Service, Tom Kloza, said he does not know if Philadelphia Energy Solutions' refinery is closing for good but if it does, the loss of supply will be made up from elsewhere, including from the Gulf Coast, Europe and Canada, as the entire world is well supplied.

Refining stocks are rallying, but Kloza said gas prices shouldn't rise too much on the East Coast. At best, prices will go up by 5 cents a gallon, he told CNBC.

Valero Energy's stock rose more than 2% on Wednesday. PBF rose more than 5% and Phillips 66 rose more than 2%.

"The regional prices, the consumer in the Philadelphia and New York market are going to see pretty significant increases in price until the new supply shows up in the next few weeks. They'll see increases of over 10 cents a gallon," said Lipow.

The oil and gas ETF (XOP) is up nearly 4%, on pace for its best day since January 4.

RBOB gas futures hit a high of 1.9787 on Wednesday, their highest level since May 23.

— CNBC's Patti Domm contributed to this report.