Oil prices settle at multi-week highs as global supply worries mount
Global Oil Market Dynamics and Supply Concerns
By Shariq Khan
NEW YORK/LONDON, April 29 (Reuters) - Oil prices surged over 6% on Wednesday to settle at their highest in weeks, as deadlocked U.S.-Iran negotiations made investors more concerned about prolonged disruptions to Middle Eastern supply.
U.S. government data showed a bigger weekly draw in crude and fuel inventories than expected, which also put upward pressure on oil prices.
Recent Oil Price Movements
Brent crude futures for June rose for the eighth consecutive session and settled up $6.77, or 6.1%, at $118.03 a barrel, the highest since March 31. The global benchmark climbed further in post-settlement trade to hit $120 a barrel for the first time since June 2022.
U.S. West Texas Intermediate futures for June rose $6.95, or 7%, to $106.88 a barrel, the highest since April 7.
Impact of U.S.-Iran Tensions
A White House official said that President Donald Trump had asked U.S. oil companies about ways to mitigate the impact of a potentially months-long U.S. blockade of Iranian ports, adding to concerns that disruptions to Middle Eastern oil supply could be prolonged.
Over $50 billion worth of crude oil supply had been lost since the start of the Iran war, according to Reuters calculations as of mid-April.
"If Trump is prepared to extend the blockade, supply disruptions would worsen further and continue to push oil prices higher," Haitong Futures analyst Yang An said.
Peak Demand Season and Supply Constraints
Inventory Drawdowns and Seasonal Demand
PEAK DEMAND SEASON ADDS TO SUPPLY CONCERNS
Signs of tightening supply have started to show in the U.S. Energy Information Administration data showed U.S. crude stocks fell over 6 million barrels last week, versus analysts' estimate of just over 200,000 barrels. [EIA/S]
U.S. stockpiles of gasoline and distillate fuels, made up primarily of diesel, also fell more than expected last week, raising concerns of potential shortages in the top fuel-consuming nation just as peak summer driving season gets underway.
"Prices will likely find renewed support as summer approaches and incremental product demand converges with supply constraints," RBC Capital Markets analysts wrote on Wednesday.
Global Supply Chain Disruptions
Elsewhere, Abu Dhabi National Oil Company has notified some customers they could load two crude grades outside of the Gulf next month because the Strait of Hormuz remains closed, according to two people with knowledge of the matter and a notice seen by Reuters.
OPEC Developments and Market Impact
UAE's Departure from OPEC
INVESTORS ASSESS UAE LEAVING OPEC
Investors were also assessing ramifications of the United Arab Emirates' decision to quit OPEC.
Short-Term and Long-Term Market Effects
Analysts do not expect any major near-term impact on the market. Over the near term, Middle Eastern producers will bring whatever they can to market, Investec head of commodities Callum Macpherson said.
Still, the UAE's exit is the most significant fracture in OPEC's history and it increases the risk of oversupply that could cause oil prices to decline from 2027, Wood Mackenzie said.
"UAE's departure from OPEC will have minimal impact on market fundamentals in 2026, even if the Strait of Hormuz reopens," said Simon Flowers, chief analyst at Wood Mackenzie.
"Beyond this year, losing the UAE will compound OPEC's challenge to balance the market and increase the risk of oversupply weakening prices," Flowers said.
(Reporting by Shariq Khan in New York, Stephanie Kelly in London, Sam Li in Beijing and Siyi Liu in Singapore; Editing by David Goodman, David Gregorio and Chris Reese)
