Oil jumped to the highest in a week as an industry report showing a continued draw-down in U.S. crude inventories tightened a supply outlook that’s being threatened by rising tension in the Middle East.
Futures in New York rose as much as 2.3% on Wednesday, as a slide in the dollar bolstered the appeal of commodities priced in the U.S. currency. The American Petroleum Institute reported nationwide stockpiles fell by 8.13 million barrels last week, according to people familiar with the data. Government inventory figures are due to be published later Wednesday.
After plunging almost 5% last Tuesday, crude has clawed back most of those losses as Britain’s seizure of a tanker carrying Iranian crude and the risk of retaliation by the Islamic Republic kept investors wary. A resumption of U.S.-China negotiations is providing some hope the trade war can be resolved, while Federal Reserve Chairman Jerome Powell’s two-day testimony to Congress that starts Wednesday will be watched closely for clues on rate cuts.
“The crude draws reported by the API yesterday were much larger than the market was expecting,” said Warren Patterson, a senior commodities strategist at ING Bank NV. “That is the key catalyst behind the move higher.”
West Texas Intermediate crude for August delivery gained as much as $1.35, or 2.3%, to $59.18 a barrel on the New York Mercantile Exchange, the highest since July 2. It traded for $58.98 as of 10:30 a.m. London time. The contract has rallied 4.8% since last Tuesday’s close.
Brent for September settlement increased $1.15, or 1.8%, to $65.31 a barrel on the ICE Futures Europe Exchange. The global benchmark crude traded at a $6.25 premium to WTI for the same month.
The API figures may be changing expectations for the data coming later Wednesday from the U.S. Energy Information Administration. Analysts previously surveyed by Bloomberg predicted the EIA would show a drop of 2.9 million barrels, less than half the decline reported by the API.
If the API figures are confirmed by the EIA data, it will be the fourth consecutive weekly decline in U.S. crude inventories. Stockpiles have shrunk by 3.5% since reaching the highest level in almost two years in the week through June 7.
The chief of staff for Iran’s armed forces vowed on Tuesday to respond to Britain’s seizure of the tanker off the coast of Gibraltar last week. The incident came after six vessels were attacked near the Strait of Hormuz since mid-May, which raised tensions around the biggest global choke-point for crude.
“The declining American inventories and Iran’s warmongering rhetoric pave the road further for bulls to make a comeback,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. in Singapore. “But it promises to be a bumpy road ahead as there’s still a lot of concern about declining energy demand.”
© 2019 Bloomberg L.P.