Crude Bulls Cautious as US Works on Vital Issues with Iran

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are inching higher on relatively low volume early Wednesday after industry data showed an unexpected drawdown in crude and fuel stocks, offsetting concerns of a possible rise in supplies from Iran. On Tuesday, prices fell as worries over more oil exports from Iran outweighed tensions over Ukraine and strong demand expectations.

At 04:41 GMT, March WTI crude oil is trading $89.72, up $0.36 or +0.40% and April Brent crude oil is at $91.14, up $0.36 or +0.40%. On Tuesday, the United States Oil Fund ETF (USO) settled at $63.60, down $1.08 or -1.67%.

Barring any major news regarding Iran or Ukraine, the price action is likely to be dictated by the U.S. government’s inventories report, due to be released at 14:30 GMT.

Oil Prices Edge Higher after API Reports Surprise Draw

The American Petroleum Institute (API) late Tuesday reported a surprise inventory draw of 2.025 million barrels of crude oil for the week-ending February 4. This was much better than the predicted build of 675,000 barrels.

The API also reported a draw in gasoline inventories of 1.138 million barrels for the same time period – compared to the previous week’s 5.816 million barrel build.

Distillate stocks saw a decrease in inventory of 2.203 million barrels for the week, after last week’s 2.508 million barrel decrease.

Finally, Cushing saw a 2.502 million-barrel decrease this week in what could trigger another wave of worry as inventories stood just above 30 million barrels as of January 28 – down from 60 million barrels at the start of 2021, and down from 37 million barrels at the end of 2021.

Iran, US Resume Indirect Talks Over Nuclear Agreement

Iran and the United States resumed indirect talks in Vienna on Tuesday to revive a 2015 nuclear deal that former U.S. President Donald Trump vacated in 2018.

While the U.S. State Department says such negotiations are entering their “final stretch”, Iranian officials have declared that part of their demands on sanctions removal have so far been left unaddressed in the Vienna talks.

A deal could return more than 1 million barrels per day (bpd) of Iranian oil to the market, boosting global supply by about 1%.

Short-Term Outlook

Crude oil traders have been chasing the headlines all week and Wednesday should be no exception.

The Biden administration has been trying to reel in soaring oil prices for months with Strategic Reserve releases and now the urgent negotiating of a new nuclear agreement with Iran. Keep in mind that talks have failed eight times since last April so don’t count on a deal unless the U.S. decides to give in to Iran’s demands.

It there is a deal then look for more Iranian crude oil to hit the market within four to six months, or even quicker if it releases the oil it has stored on barges. If there is no deal at this time then look for prices to resume their move toward $100 per barrel.

Wednesday’s EIA report is expected to show a 400,000 barrel increase in crude stocks for the week-ending February 4.

Russia remains a wildcard after French President Emmanuel Macron said his meeting with Russian President Vladimir Putin helped prevent a worsening of the Ukraine crisis, although the Kremlin denied that Putin had promised Macron that Russia would stage no further maneuvers near Ukraine for now.