(RTTNews) – Pausing four consecutive sessions of losses, crude oil prices have moved higher on Wednesday as energy experts are skeptical of an early restoration of normal oil trade in the gulf region despite the likely success of the upcoming U.S.-Iran deal.
WTI Crude Oil for July month delivery was last seen trading up by $0.45 (or 0.59%) at $76.50 per barrel.
On Sunday, U.S. President Donald Trump announced that U.S. and Iran have agreed for a deal. Iran’s Deputy Foreign Minister Kazem Gharibabadi confirmed Trump’s message.
The deal allows a 60-day ceasefire period to encourage negotiations on all sticking points with an aim to end the conflict permanently. The official signing ceremony is scheduled to be held at Switzerland on Friday.
Pushing all other issues for negotiations, according top priority, the Strait of Hormuz will be reopened immediately.
With demand and supply concerns reducing, since Sunday, oil prices went into freefall.
Yesterday, citing people familiar with contents of the agreement, the Wall Street Journal reported that a provision in the deal allows Iran to sell its oil and fuel immediately after the signing is completed.
Though energy experts welcomed the developments over this week, they are cautiously optimistic as the full text of the Memorandum of Understanding has not been made public yet.
The fate of critical points of disagreement between the U.S. and Iran including billion of dollars worth of Iran’s assets frozen in foreign countries, transfer of enriched uranium from Iran, Iran’s nuclear programs, the huge sum required to reconstruct Iran’s oil and energy infrastructure, authority over the Strait of Hormuz, the Israel-Lebanon ceasefire, etc. remain unclear.
In addition, today Trump stated that the MoU is not going to be a final one, and if he does not like it, he may return to dropping bombs on Iran once again.
Further, shipping companies await more clarity on the safety of the waterway before re-routing carriers through the Hormuz strait.
Insurance providers have increased war-risk premiums since the beginning of the conflict, and it may take time for insurers to recalibrate the amount.
Waiting to transit, more than 550 ships are stranded on either side of the strait.
The Paris-based International Energy Agency has reported that oil supplies are expected to surge by nearly 8 million barrels per day to 110 million bpd by next year. However, it added that the global supply is set to fall by 3.9 billion bpd to 102.4 million bpd in 2026.
On the inventory front, data from the American Petroleum Institute revealed that U.S. crude oil inventories fell by 8,330,000 barrels for the week ending June 12, exceeding expectations of a 4,500,000-barrel draw. This followed a 9,120,000-barrel decline in the previous week.
According to the U.S. Energy Information Administration, for the week ending June 12, crude oil inventories in the U.S. fell by 8,262,000 barrels, the most since February, to 418,200,000 barrels. At the Cushing, Oklahoma delivery hub, inventories fell by 1,606,000 barrels.
For the same period, gasoline inventories decreased by 906,000 barrels, distillate inventories increased by 951,000 barrels, and heating oil inventories declined by 204 thousand barrels.
At the conclusion of its two-day meeting today, the U.S. Federal Reserve kept the funds rate unchanged at 3.50% to 3.75% range for the fourth consecutive meeting. This decision was in line with market expectations.
Economists expect the rates to remain higher in the short-term as oil-price-driven inflationary pressures have not yet subsided fully. Higher interest rates could slowdown economic activity, which in turn may restrain oil demand.
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