-- West Texas Intermediate (WTI) crude oil closed higher on Wednesday, rising for a fourth-straight session as hopes for a coming end to the Iran war and a reopening of the Strait of Hormuz fade, while a report showed an larger than expected drop in U.S. oil inventories.
WTI crude oil for June delivery closed up US$6.95 to settle at US$106.88 per barrel, the highest since April 7, while June Brent oil was last seen up US$6.74 to US$118.00.
WTI has now climbed 59% since the war began on Feb. 28, when Iran blocked the Strait of Hormuz, a key chokepoint for roughly 20% of global oil supply, following attacks by the United States and Israel. The United States is now blockading Iranian ports and Iran has demanded that be lifted before peace talks can resume, which the U.S. is refusing to do, continuing the largest-ever supply shock.
"The near closure of the Strait of Hormuz prolongs a disruption that continues to tighten global energy markets ... Traders now focus on the next steps in peace talks and today's US inventory report for further signs of how quickly US stockpiles are falling amid robust export demand," Saxo Bank wrote.
In its weekly survey, the Energy Information Administration reported U.S. commercial oil inventories fell by 6.2-million barrels last week, while the consensus estimate among analysts polled by Reuters forecast a drop of 2.2-million barrels.
The oil market is also focusing on the Tuesday decision by the United Arab Emirates to withdraw from the OPEC Cartel. The UAE is OPEC's third-largest producer and the No. 7 global oil exporter. The decision is unlikely to have a near-term effect, given the supply shock, but could add additional supply to the market once the conflict ends.
"Given the world is currently suffering from a lack of supply due to the closure of the Strait of Hormuz, the UAE's departure doesn't really matter since it is already producing at its maximum capacity. That is the maximum it can export via its pipeline (1.5-1.8 mb/d) to the Gulf of Oman given the closure of the Strait, which is why the UAE's overall output fell to 2.37 mb/d in March (vs. 3.64 mb/d in February). In the longer run, when hopefully the conflict is resolved, it may matter more as the UAE could supply the global oil market with an additional 1.0 mb/d. Moreover, OPEC/OPEC+ is losing one of its most vital members," Art Woo, a senior economist at BMO Capital Markets, wrote.