Oil futures finished higher on Wednesday, as price support from across-the-board declines in U.S. petroleum inventories outweighed concerns over the prospects for a return of Iranian crude supplies to the global market. A “full house of draws from this week’s inventory report” supported prices, said Matt Smith, director of commodity research, at ClipperData. “Crude inventories saw a modest draw, helped by ongoing strength in exports, a tick higher in refining activity, and a dip in imports,” he said in emailed commentary. “Higher implied demand for both gasoline and distillates encouraged a draw to both.”
The Energy Information Administration reported Wednesday that U.S crude inventories fell by 1.7 million barrels for the week ended May 21. On average, analysts polled by S&P Global Platts forecast a decline of 2.2 million barrels for crude stocks, while the American Petroluem Institude on Tuesday reported a 439,000-barrel decline.
West Texas Intermediate crude for July delivery rose 14 cents, or 0.2%, to settle at $66.21 a barrel on the New York Mercantile Exchange. Front-month July Brent crude, the global benchmark, climbed by 22 cents, or 0.3%, at $68.87 a barrel on ICE Futures Europe. The most active August Brent tacked on 24 cents, or nearly 0.4%, at $68.73 a barrel. The EIA also reported that gasoline supply also declined by 1.7 million barrels, while distillate stockpiles fell by 3 million barrels for the week. The S&P Global Platts survey had expected weekly supply declines of 700,000 barrels for gasoline and 1.6 million barrels for distillates. On Nymex, June gasoline rose by almost 1.6% at $2.1501 a gallon and June heating oil tacked on 0.5% to nearly $2.0452 a gallon.
The EIA data also showed crude stocks at the Cushing, Okla., storage hub edged down by 1 million barrels for the week. Despite bullish fundamentals for oil, concerns about the potential addition of Iranian oil, as well as the “impact from the Chinese crackdown on retail commodity investors” remain, said Phil Flynn, senior market analyst at The Price futures Group. China’s “zero tolerance” crackdown on commodity-market speculators, “while short-term bearish, may be bullish as it will reduce liquidity in the markets, which could lead to more volatility as well as a potential market squeeze,” Flynn told Market Watch.
When it comes to Iran, the key is the decision by the Organization of the Petroleum Exporting Countries and their allies, together known as OPEC+, at their meeting on Tuesday, Flynn said. Russia is reportedly suggesting that the group should adjust their production to price in more Iranian barrels, he said. Tariq Zahir, managing member at Tyche Capital Advisors, expects crude prices to trade in a narrow range until the OPEC+ meeting, but the real market-moving influence could be “any news on lifting sanctions with Iran.” Iran has a large amount of oil that is in floating storage, and “any relaxing of sanctions could put additional oil into the markets,” Zahir told MarketWatch. “We also have to watch what Saudi Arabia does. If sanctions do get relaxed, we wouldn’t be surprised to see Saudi lower their prices, especially to Asia to retain and even gain market share.”
OPEC+ supply increases, along with the lifting of sanctions on Iran, could “soften energy prices, offsetting the demand increase we are seeing here in the U.S.,” said Zahir.
