Oil Gains as Europe, MidEast Wars Offset US Stock Build

Oil prices posted small gains on Wednesday, appearing less affected by a surprise increase in US oil stocks as geopolitical turmoil in Europe and the Middle East continues to intensify.

August contract Brent crude oil futures slightly rose 0.06% to $85.38 per barrel, while the West Texas Intermediate (WTI) crude futures expiring the same month was up 0.02% to $80.73 per barrel.

The global and US benchmarks gained over $1 on Tuesday after Ukraine reportedly orchestrated a drone strike that set oil storage tanks at Russia’s southern port of Azov ablaze, marking the latest escalation of the year-long war between the two countries.

The Middle Eastern tensions also showed no signs of easing, with Israeli Foreign Minister Israel Katz warning they are nearing a decision to launch an ‘all-out war’ against the Lebanese, Iran-backed militant group Hezbollah, despite the US’s efforts to contain the conflict.

A broader war may further reinforce potential supply disruptions from major oil producers in the region.

API Stocks Build, Other Bearish Oil Factors Go Unheeded

Curbing oil prices’ upturn on Wednesday was data from the American Petroleum Institute (API) showing an unexpected build in US crude inventories.

For the week ending June 14, US stocks increased 2.264 million barrels, curbing the earlier week’s 2.428 barrel draw and bringing the supply overhand of the country’s crude to more than 17 million barrels since the first week of January.

Distillates also climbed 538,000 barrels, but gasoline stocks dropped 1.077 million barrels, compared to the 2.549 barrel decline posted the week before.

Geopolitical tensions in Europe and the Middle East continue to hurt a fear premium in energy markets.

Furthermore, with the uncertainty of better demand in the summer, traders are primarily not considering bearish factors such as a US oversupply and China’s refinery output falling 1.8% year-over-year (YoY) in May.

Markets currently expect stronger demand for fossil fuels in the summer to reduce excess supplies worldwide amid the Organization of the Petroleum Exporting Countries (OPEC) and non-member allies’ plans to start discontinuing the 2.2 million barrels per day (bpd) voluntary output cuts in October.

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