U.S. West Texas Intermediate and international-Benchmark Brent crude oil futures are rebounding early Wednesday following yesterday’s steep sell-off. Traders are making a price adjustment in reaction to a smaller than expected drop in U.S. crude inventories. On Tuesday, prices plunged after a U.S. government official said Iran was ready to negotiate regarding its missile program.
On Tuesday, crude oil prices plunged more than 3% after President Donald Trump said progress has been made with Iran, signaling tensions could ease in the Middle East.
Trump said on Tuesday a lot of progress had been made with Iran and that he was not looking for regime change in the country. The President, who made the remarks at a Cabinet meeting in the White House, did not give details about the progress, but U.S. Secretary of State Mike Pompeo said at the meeting Iran had said it was prepared to negotiate about its missile program.
American Petroleum Institute Reports Smaller Draw
Late Tuesday, the API reported a smaller-than-expected crude oil inventory draw of 1.401 million barrels for the week-ending July 11, compared to analyst expectations of a 2.69-million barrel draw.
After a number of consecutive draws, the net build is now just 12.16 million barrels for the 29-week reporting period so far this year, using API data.
The API also reported a 476,000-barrel draw in gasoline inventories for the week-ending July 11. Analysts were looking for a 925,000-barrel draw. Distillate inventories grew by 6.226 million barrels for the week, while inventories at Cushing fell by 1.115 million barrels.
Lingering Impact from Hurricane Barry
More than half the daily crude production in the U.S. Gulf of Mexico remained offline on Tuesday in the wake of Hurricane Barry, the U.S. drilling regulator said, as most oil companies were re-staffing facilities to resume production.
The Bureau of Safety and Environmental Enforcement said 1.1 million barrels per day of oil, or 58% of the region’s total, and 1.4 billion cubic feet per day of natural gas output remained shut.
The tone in the crude oil markets shifted from slightly positive to negative with the announcement of possible talks between the U.S. and Iran. Rising tensions between the two countries and in the Strait of Hormuz, for that matter, had been propping up prices for week. The news forced speculative buyers, betting on a potential supply disruption, to aggressively liquidate their long positions, leading to Tuesday’s steep sell-off.
Oil production in the Gulf of Mexico returning to normal following Hurricane Barry is also expected to limit price gains. Additionally, the smaller-than-expected decline in crude stocks suggested production shut-ins caused by Hurricane Barry late last week had little impact on inventories.
Later today at 14:30 GMT, the U.S. Energy Information Administration (EIA) will release its weekly inventories report. It is expected to show yet another drawdown. However, it probably won’t be big enough to recover yesterday’s steep loss.
This article was originally posted on FX Empire
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