Oil futures closed higher on Wednesday trading close to $59 a barrel for the U.S. benchmark, while the U.S. government reported the third straight week of decline in crude supply.
Meanwhile, tensions in Yemen intensified which also impacted oil prices. On Wednesday, oil prices recouped less than 50% of the previous day losses, but as U.S. production failed to decrease, this prompted negative sentiment among investors.
July crude (CLN5, +1.09%) settled at $58.98 per barrel on the New York Mercantile Exchange, 99 cents, or 1.7% up. Meanwhile, on Tuesday, prices had declined 3.7% on the back of a strengthened U.S. dollar (USD), yet supply data released on the day pushed the commodity price higher.
Meanwhile, on London’s ICE Futures exchange, Brent crude (LCON5) for delivery in July increased $1.01, or 1.6%, to settle at $65.03 a barrel.
Global Hunter Securities macro strategist, Richard Hastings, said that the action seen on Wednesday is typical with concerns over Iranian action in Yemen and the advances west of Bagdad from ISIS.
On Tuesday, Pentagon officials said that two Iranian warships, believed to be carrying humanitarian aid for Yemen civilians, linked up off the coast of Yemen in the Gulf of Aden with a vessel from Iran.
Concerns have been raised over the presence of these ships and that Iran may send it straight to Yemen without the agreement of a UN (United Nations) inspection. This situation now has the potential to set the stage for a showdown between the U.S. and Iran together with forces from Saudi Arabia. As a result, crude supplies in the region could be at risk.
Early on Wednesday, the Energy Information Administration (EIA) in the U.S reported a drop of 2.7 million barrels in Brent crude supplies for the week that ended May 15. It was slightly more than the 2 million barrel drop expected by analysts who were polled by Platts. On late Tuesday however, the American Petroleum Institute (API) reported a larger 5.2 million barrel drop.
Added to this, according to EIA data, the oil output remained unchanged in the lower forty-eight states at 8.87 million barrels per day. According to EIA, gasoline supplies also dropped by 2.8 million barrels, as distillate stockpiles dropped by 500,000 barrels last week. This missed analysts’ expectations for gasoline stockpiles to go unchanged while distillate inventories, including heating oil, were expected to indicate a drop of 560,000 barrels.
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