EMEA crude futures slipped in after-hours trading on Wednesday as the market weighed simmering geopolitical tensions in the Middle East against a record-breaking contraction in global inventories.
Brent crude futures dropped by 1.56% to $106.09 per barrel, while Murban oil futures were down 0.80% to $105.15/bbl.
"Oil prices dipped after gaining around 8% over the previous three sessions as the global oil market continued to tighten amid limited prospects for a reopening of the Strait of Hormuz," Saxo Bank strategists said in a note on Wednesday.
The International Energy Agency said on Wednesday that global observed oil inventories dropped by 250 million barrels in March and April, or at a rate of about 4 million barrels per day, as demand is now expected to contract by 2.4 million barrels per day over the year in Q2 and 420,000 b/d for the entire year, more than 1.3 million b/d projected before the conflict.
The IEA said Saudi Arabia and the UAE have redirected some exports to ports that bypass Hormuz, as producers outside the Middle East, particularly the US, have ramped up exports to record highs in response to the conflict.
Government and commercial stockpiles also helped mitigate the losses, the IEA said. However, the agency said oil inventories are depleting at a record pace due to mounting supply losses from the closure of the Strait.
Meanwhile, crude production among OPEC members fell further in April and is down more than 30% since the onset of the Middle East conflict in late February, the producer group said in its latest monthly update.
OPEC production fell by 1.7 million b/d in April after output plunged by 7.9 million b/d in March. The group said production among OPEC countries has dropped more than 30%, or 9.7 million b/d, during the conflict.
President Trump reportedly downplayed the attention the Middle East conflict would receive during his summit with Chinese counterpart Xi Jinping, adding that Washington has Tehran very much under control.
The effective closure of the Hormuz has significantly disrupted global supplies of crude, natural gas and fuels, stoking fears of reignited inflation.
"Oil prices edged lower, as ongoing disruptions in the Strait of Hormuz continued to strain global energy markets despite no clear progress toward ending the Middle East conflict," Soojin Kim, research analyst at MUFG, said.
The US Central Command said on Wednesday it has redirected 67 commercial vessels as part of a blockade targeting ships entering and exiting Iranian ports. Three tankers carrying Iraqi crude and fuel oil are currently stalled off Oman after transiting the Strait of Hormuz via a corridor controlled by Iran, according to Kpler.
"With the cargoes linked to Iraqi loading points already under US scrutiny, the case highlights how blockade enforcement is expanding beyond cargo origin to include routing, payments and documentation risk," the analytics firm said.