Key Takeaways
- Brent futures settled at $84.95 a barrel, up 0.26 percent.
- US Energy Information Administration reported a 1.7-million-barrel drop in US crude inventory last week.
- Iran’s Islamic Revolutionary Guard Corps threatened to close export corridors benefiting the US and its allies.
Oil prices rose slightly on Wednesday, reacting to stronger-than-expected inventory data and largely shrugging off a new wave of US attacks against Iranian military installations. Brent futures settled at $84.95 a barrel, up 22 cents or 0.26 percent, while West Texas Intermediate futures finished at $79.60 a barrel, up 26 cents or 0.33 percent.
The US Energy Information Administration reported a significant drop in US crude inventory last week, with a decrease of 1.7 million barrels compared to the forecasted drawdown of 2.6 million barrels. This stabilization in supply levels contributed to the slight rise in oil prices.
Phil Flynn, senior analyst with Price Futures Group, commented that there seems to be a sense that we’ve seen this movie before, referring to hostilities in the Middle East. He noted, 'There’s a sense in that EIA report the supplies instead of evaporating are stabilizing.'
The US had earlier reimposed a naval blockade of Iranian ports and launched overnight strikes against Iranian military targets near the strategic Strait of Hormuz. In response, Iran’s Islamic Revolutionary Guard Corps threatened to close ‘all other export corridors that benefit the US and its allies’.
Late on Tuesday, the US military said it had hit dozens of military targets in strikes lasting seven hours. The next day, Iran’s Islamic Revolutionary Guard Corps announced it had struck US military targets in Bahrain, Kuwait, and Jordan. The US military responded by targeting Iranian coastal defence systems and cruise missile storage and launch sites.
Analysts have noted that Iran has been signaling its intention to use Houthi allies in Yemen to shut the Bab el-Mandeb gateway to the Red Sea, opening a new front against Washington and risking two of the world’s most vital energy arteries. UBS analyst Giovanni Staunovo said further strengthening oil prices was due to the US naval blockade of ships coming and going to Iranian ports.
Iranian crude exports are estimated to be around 1.5 million to 2 million barrels per day in the last two weeks, according to analysts. Goldman Sachs estimated that Gulf exports recovered to more than 80 percent of pre-war levels after the US-Iran memorandum of understanding in June but slipped back below 50 percent or about 11 million bpd over the last week.
The bank said Brent could exceed $110 in the fourth quarter this year if the Gulf export recovery continues to stall. Analysts remain cautious, noting that while tensions between Iran and the US have reignited, the stabilization of supply levels has limited the impact on oil prices.
There seems to be a sense that we’ve seen this movie before.
Phil Flynn, Senior analyst with Price Futures Group
