Crude oil futures slipped in midday trading on Wednesday as markets weighed a prolonged US-Iran standoff against a larger-than-expected draw in US crude inventories and signs of tightening global supply conditions.
Front-month West Texas Intermediate crude futures dropped by 0.89% to $101.28 per barrel, while Brent futures were down 1.69% to $105.97/bbl.
US crude inventories fell by 4.3 million barrels to 452.9 mmbbls in the week ended May 8, the Energy Information Administration said in its weekly report on Wednesday. The agency said the stockpiles are now about 0.3% above the five-year average for this time of year.
The ongoing Middle East conflict has roiled energy markets, as the continued closure of the Strait of Hormuz has severely disrupted global flows of crude, fuels, and gas.
"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.
Kpler strategists said that 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.
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.
Meanwhile, President Trump arrived in China on Wednesday after downplaying the attention the ongoing conflict would receive during his summit with Chinese President Xi Jinping, according to media reports.
China is reportedly the biggest buyer of Iranian oil despite sanctions pressure from the Trump administration.
Curbing the losses, 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.
The IEA now expects oil demand to contract by 2.4 million barrels per day over the year in Q2 and by 420,000 b/d for the entire year, more than 1.3 million b/d from projections before the conflict.
The agency 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.
On the supply side, 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 by over 30%, or 9.7 million b/d, during the conflict.