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James Hyerczyk
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WTI and Brent Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Wednesday shortly before the release of the government’s weekly inventories report. The market surged on Tuesday after reversing an earlier loss on dampened concerns over Iranian crude oil flooding the market, a bigger than expected crude oil draw in an industry report and expectations of increased demand.

At 11:23 GMT, July WTI crude oil is trading $70.27, up $0.22 or +0.31% and August Brent crude oil is at $72.46, up $0.24 or +0.33%.

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Prospect of Iranian Supplies Returning Fades

U.S. Secretary of State Antony Blinken said on Tuesday that even if Iran and the United States returned to compliance with a nuclear deal, hundreds of U.S. sanctions on Tehran would remain in place.

The trade has been cautious in recent weeks as oil investors had been assuming that sanctions against Iranian exports would be lifted and oil supply would increase this year as Iran’s talks with western powers on a nuclear deal progressed.

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API’s Reported Draw Adds to Bullish Sentiment

The American Petroleum Institute (API) on Tuesday reported a draw in crude oil inventories of 2.108-million barrels for the week ending June 4. Analysts had predicted a draw of 2.036 million barrels for the week.

The API also reported a build in gasoline inventories of 2.405 million barrels for the week ending June 4 – on top of the previous week’s 2.51-million-barrel build. Analysts had expected a much smaller build f 698,000-barrel for the week.

Distillate stocks saw an increase in inventories this week of 3.752 million barrels for the week, on top of last week’s 1.585-million-barrel increase.

Cushing inventories fell this week by 420,000 barrels.

Energy Information Administration Sees Increased Fuel Consumption

On Tuesday, the EIA forecast fuel consumption growth this year in the United States, the world’s biggest oil user, would be 1.49 million barrels per day (bpd), up from a previous forecast of 1.39 million bpd.

Recent traffic data suggests travelers are hitting the roads as restrictions ease, ANZ Research analysts said in a note, pointing to TomTom data which showed traffic congestion in 15 European cities had hit its highest since the coronavirus pandemic began.

“The widespread faith that oil demand growth will trend significantly higher in the second half of the year is paving the way forward for the price rally,” PVM analysts said.

Daily Outlook

At 14:30 GMT, the U.S. Energy Information Administration (EIA) will release its inventories report. Traders are looking for a 3.3 million barrel draw in crude oil inventory. This may be enough to support the market, but bearish gasoline numbers could limit gains.

Not all of the news is bullish. Potentially dampening prices, the latest crackdown by Chinese authorities to curtail the country’s bloated refining sector could see Chinese crude imports fall by around 3% or around 280,000 barrels per day, sources told Reuters.

For a look at all of today’s economic events, check out our economic calendar.
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