Oil Climbs as Iran Tensions Linger While U.S. Stockpiles Decline

Oil extended its longest rally in three weeks as lingering Iran tensions stoke concerns over the stability of Middle East energy flows, while U.S. crude stockpiles continue to tighten.

Futures rose as much as 0.8% in New York after gaining 3.9% in the past four sessions. Iran has reached a deal with Russia to hold a joint military drill in the Indian Ocean by March 2020, semi-official Fars News reported, citing the commander of the Iranian navy. American crude inventories dropped by 6.02 million barrels last week, according to an industry report. If confirmed by government data on Wednesday, it will be a seventh weekly decline.

Oil is little changed this month after swinging between gains and losses as global growth concerns competed with the prospect of a supply disruption in the Middle East. While optimism is growing the Federal Reserve will cut rates, China and the U.S. concluded a new round of trade talks in Shanghai on Wednesday, with little immediate evidence of a breakthrough.

Iran’s military accord with Russia is “negative for the prospect of a resolution of U.S.-Iran tensions,” said Stephen Innes, a managing partner at VM Markets Pte in Singapore. “With Russian support, Iran will feel less isolated and more inflexible to U.S. demands. The Fed rate cut is supportive, but the thought of concerted central bank policy actions has also triggered an unwinding of some of the markets more aggressively bearish structures.”

West Texas Intermediate for September delivery gained 39 cents, or 0.7%, to $58.44 a barrel on the New York Mercantile Exchange as of 8:05 a.m. London time. The contract rose 2.1% on Tuesday, the biggest daily gain since July 10.

Brent crude for September, which expires Wednesday, added 47 cents to $65.19 a barrel on the ICE Futures Europe exchange. It gained 1.6% to close at $64.72 on Tuesday. The more-active October contract was at $65.12, up 49 cents. The global benchmark crude traded at a $6.78 premium to WTI.

Tensions have escalated in the Persian Gulf in recent months after a series of attacks on tankers and drones. BP Plc, which had to shelter one of its vessels this month in fear it could be targeted by Iranian forces, is avoiding sending ships to the Persian Gulf, Chief Executive Officer Robert Dudley said Tuesday.

A steady decline in U.S. crude inventories has alleviated some concerns about demand. American stockpiles have dropped for six weeks through July 19, the longest run of losses since January 2018. Government data is forecast to show supplies fell by 2.75 million barrels, according to a Bloomberg survey.

Source: Bloomberg