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Futures Movers: Oil prices settle with a slight gain after supply data and Fed update

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Oil futures settled with a slight gain Wednesday, just barely extending their rise to the highest prices in more than two years after official U.S. government data showed a more than seven million-barrel weekly decline in crude inventories — the fourth weekly fall in a row.

Prices, however, pared most of their earlier gain after the Federal Reserve said it may raise interest rates earlier than it previously expected, with two interest rate increases possible in 2023. The dollar strengthened
DXY,
+0.79%

following the policy announcement, weighing on prices for dollar-denominated oil.

Tariq Zahir, managing member at Tyche Capital Advisors, told MarketWatch shortly after the oil settlement that he’s surprised oil wasn’t seeing more of a pullback in prices, “as we did see a shift of the Fed saying pushing rate increases closer in time.”

“We feel we could see downside from here in the energy markets if the equity markets remain soft” but, more importantly, the bond market sees some pretty good weakness,” said Zahir. U.S. Treasury yields, which trade inversely to bond prices, moved sharply higher after the Fed news.

West Texas Intermediate crude for July delivery
CL00,
-0.24%

CLN21,
-0.24%

rose 3 cents, or 0.04%, to settle at $72.15 a barrel on the New York Mercantile Exchange, with front-month prices eking out their highest finish since Oct. 10, 2018, according to Dow Jones Market Data. Prices were down at $71.90 in electronic trading about a half-hour after the settlement.

August Brent crude
BRN00,
-0.34%

BRNQ21,
-0.34%
,
the global benchmark, rose 40 cents, or 0.5%, at $74.39 a barrel on ICE Futures Europe, marking another finish at the highest since April 2019.

Commenting on the U.S. supply data Wednesday, Phillip Streible, chief market strategist at Blue Line Futures, told MarketWatch that another sharp drawdown in crude supplies proves that “demand is greatly outstripping supply.”

The Energy Information Administration reported on Wednesday that U.S. crude inventories fell by 7.4 million barrels for the week ended June 11.

On average, analysts polled by S&P Global Platts forecast a decline of 4.2 million barrels for crude stocks, while the American Petroleum Institute on Tuesday reported an 8.5 million-barrel decrease, according to sources.

The EIA report Wednesday also showed that gasoline supply climbed by 2 million barrels, while distillate stockpiles fell by 1 million barrels for the week. The S&P Global Platts survey forecast that gasoline supplies would be unchanged for the week, while distillate stockpiles would edge up by 200,000 barrels.

On Nymex, July gasoline
RBN21,
-0.92%

edged down by 0.7% to $2.16 a gallon, while July heating oil
HON21,
-0.78%

settled at $2.10 a gallon, down 0.4%.

The EIA data also showed crude stocks at the Cushing, Okla., storage hub declined by 2.1 million barrels for the week. 

Implied demand for petroleum products rebounded last week, “leading to a draw for distillates, but gasoline still showed a build, aided by the jump in refining activity,” said Matt Smith, director of commodity research at ClipperData. “Strong crude imports and a tick higher in domestic production are no match for stronger refinery runs and chunky exports.”

“With refinery runs over 16 million barrels per day and exports continuing to be robust, it is going to be difficult for inventories to avoid consistent draws as we push on to the peak of summer driving season,” said Smith.  

Meanwhile, expectations are fading for an agreement that would see Iran move back into compliance with the 2015 nuclear treaty and the U.S. rejoin the agreement, lifting sanctions on Tehran, ahead of Iran’s presidential election at the end of the week.

“While the diplomats remain optimistic a deal is within reach, the market seems to have concluded that the time window to reach an accord has already closed with Iranian elections scheduled on Friday. A deal is still possible, but perhaps not immediately, adding momentum to oil prices,” said Marios Hadjikyriacos, investment analyst at XM, in a note.

Read: Why Iran’s presidential election is the ‘most important political milestone’ of 2021 for the global oil market

The prospect of a deal in coming months, however, remains strong, said Helima Croft, head of global commodity strategy at RBC Capital Markets.

“The election outcome is unlikely to alter the course of the nuclear negotiations as Supreme Leader Khamenei has seemingly blessed the Vienna talks in order to secure sanctions relief,” she wrote in a note. Khamenei may have “slow walked” a signing of the agreement in order to boost the electoral prospects of Chief Justice Ebrahim Raisi’s electoral prospects.

Croft said an agreement is likely before the incumbent president, Hassan Rouhani, and Foreign Minister Mohammad Javid Zarif leave office in August, with an additional 1 million barrels a day of Iranian exports likely to hit the market in the fourth quarter.

Rounding out action on Nymex, July natural gas
NGN21,
+0.31%

settled at $3.25 per million British thermal units, up 0.3%.

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