The response of oil prices to API's report on inventories suggests market players have already factored in the immediate effects of US sanctions against Iran on prices, hence volatility has been reigned in to an extent.
Indian Oil Corp, the country's top refiner, will buy 6 million barrels of United States crude oil for November to January delivery through a mini-term tender, its head of finance said on Wednesday.
"Presumably, some market participants expect the huge drop in Iranian oil exports that is on the cards to tighten the supply situation and drive up prices", Commerzbank analysts said.
Iraqi Prime Minister Haider al-Abadi said his country opposes sanctions on Iran, but will abide by them to protect its own interests.
Under the arrangement, Iran's oil payments were deposited into accounts in oil-importing countries and used by Tehran to buy goods.
"It certainly is a reminder to everyone that the U.S.is serious about sanctions, and it's doubtful they will grant waivers", said John Kilduff, partner at Again Capital Management in NY. China's foreign ministry on Wednesday stated that Beijing will continue its business with Iran as does not violate any UNSC resolution.
Oil prices rose on Monday after Saudi crude production registered a surprising dip in July and as American shale drilling appeared to plateau.
The buildup was mainly due to 9.6 million barrels of lower exports for the week ending July 27, compared with the previous weekly report levels. Nationwide inventories in the U.S. probably fell 3 million barrels last week, according to a Bloomberg survey of analysts before government data due on Wednesday.
EIA also reported on Wednesday that US oil production declined to 10.9 million barrels per day during the week ending July 27, dropping from its record high level of 11 million barrels per day.
"Without the extra Saudi oil we had in June, it's hard to crunch the numbers and get a lower price going into the end of the year", said John Kilduff of Again Capital.
Market participants will look for signals on United States inventory levels from a preliminary report due for release by the American Petroleum Institute later Tuesday.
The concerns over possible supply disruptions in Iran come at a time when analysts warn that a global heatwave could increase oil demand. China has proposed to impose retaliatory tariffs on $60 billion worth of US goods, including Liquefied Natural Gas (LNG), fueling speculation that it could also impose tariffs on oil.
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