Investing.com - Oil prices gained ground on Wednesday as market participants stayed focused on upcoming Iranian sanctions and their expected squeeze on supply, despite weekly data showing U.S. crude stockpiles ballooning four times more than expected.
Crude oil inventories across the United States rose by 7.975 million barrels during the week ended Sept. 28, vs. analysts’ forecasts for a build of 1.98 million, the Energy Information Administration (EIA) said. In the previous week to Sept. 21, stockpiles rose by 1.85 million.
Crude prices fell initially on the outsize inventories reported by the EIA. As trading progressed, however, the mood shifted back to the theme that had dominated the market over the past few months. U.S. sanctions on Iranian oil exports will begin on Nov. 4 and could take some 3% off the global market’s daily supply.
New York-traded West Texas Intermediate (WTI) crude for November delivery settled up $1.18, or 1.6%, at $76.41 per barrel, after racing to $76.90, a new peak since November 2014. It fell as much as 92 cents initially, to an intraday low of $74.31, on the EIA report.
London traded Brent crude for December delivery was up $1.40, or 1.7%, at $86.20 a barrel by 3:00 PM ET (19:00 GMT). Brent’s high for the day was $86.73, a peak since October 2014.
Some traders, who had expected oil prices to settle lower on the EIA report, said Wednesday’s highs were clearly against fundamentals, particularly given the stronger performance of the dollar, which was another negative for commodities.
“In our opinion, on the global macro, with the front 10-year yield inching higher along with a little strength in the U.S. dollar, the only thing keeping crude from a large move down is the upcoming Iran sanctions,” said Tariq Zahir, managing member at Tyche Capital Advisors in New York, which typically makes bets on calendar spreads of WTI.
Iran is the world’s fourth-largest oil producer and the third-largest exporter in the Organization of the Petroleum Exporting Countries (OPEC). It produced a peak of 2.7 million barrels per day in May and could be prevented from shipping up to 1.5 million bpd under U.S. sanctions.
Many energy analysts fear that OPEC and other major non-OPEC producers, including Russia, have little spare capacity to make up for the shortfall in Iranian supplies from November, and expect Brent to hit $100 a barrel or so from the squeeze.
But some also think the market is just being hyped up by oil bulls and refer to a Reuters report on Wednesday that Russia and Saudi Arabia have a private deal with the U.S. to raise output.
A few analysts tried to justify Wednesday’s rally by pointing to better weekly numbers for petroleum products reported by the EIA.
The agency said gasoline inventories fell by 459,000 barrels, compared to expectations for a build of 1.32 million. Distillate stockpiles fell by 1.75 million barrels, compared to forecasts for a decrease of 1.3 million.
“The headline crude build was a shocker, but gasoline demand was strong and distillate demand solid,” said Phil Flynn, analyst at the Price Futures Group in Chicago.
Gasoline RBOB rose 0.5% to $2.1374 a gallon. Heating oil, which represents distillates, jumped 1.2% to $2.4359 a gallon. Elsewhere, in energy trading, natural gas rose by 2.3% to $3.240 per million British thermal units.