Oil edges higher on inventories data, EIA report in focus

West Texas Intermediate snapped four days of declines on Wednesday after the industry-funded American Petroleum Institute reported on Tuesday that U.S. crude inventories dropped last week, indicating consistent demand in the worlds top consumer. A larger decrease is expected to be reported by the EIA at 14:30 GMT. Gains however remained capped as the U.N. Security Council is due to lead negotiations for a diplomatic end to the Syrian conflict that threatened to disrupt oil supply from the Middle East, which accounts for a third of global output.

On the New York Mercantile Exchange, WTI crude for delivery in November rose by 0.33% to $103.48 per barrel at 7:14 GMT. Prices held in range between days high and low of $103.73 and $103.23 a barrel respectively. Light, sweet crude plunged to an 8-week low on Tuesday and marked a fourth consecutive daily decline but trimmed its weekly loss to 1.3% following Wednesdays rebound.

Meanwhile on the ICE, Brent futures for November settlement traded at $108.96 a barrel at 7:14 GMT, up 0.30% on the day. The contract ranged between days high and low of $109.32 and $108.70 a barrel. The European benchmark rose by 0.7% on Tuesday and reduced its weekly decline to 0.2% following Wednesdays advance.

WTI rose on Wednesday after losing 4.6% over the previous four sessions after the American Petroleum Institute reported that U.S. crude oil stockpiles fell by 54 000 barrels in the week ended September 20. The institute also said that motor gasoline inventories rose by 341 000 barrels and distillate fuel supplies gained 485 000 barrels. However, APIs data is considered as less reliable than EIAs statistics as it is based on voluntary information from operators of pipelines, refineries and bulk terminals.

The Energy Information Administration will release its weekly report on Wednesday at 14:30 GMT. According to a Bloomberg survey of ten analysts, the agencys data might show that crude inventories dropped by 1 million barrels, or 0.3%, to 354.6 million barrels last week, the lowest in 18 months. If confirmed, this would be an eleventh drop in 13 weeks. The poll also showed that economists expected a 750 000 barrels drop in gasoline stockpiles, while distillate fuel supplies declined by 925 000 barrels. Refineries utilization is projected to have declined by 0.9% to 91.6%.

Jonathan Barratt, the chief executive officer of Barratt’s Bulletin in Sydney, said for Bloomberg: “There’s good support for prices at these levels, and the data is the trigger for them to go higher.”

U.N. negotiations

Oil prices retreated from August 28s two-year high as geopolitical tension in the Middle East started to dissipate after the U.S. agreed to a Russian plan to avert military action if Syria relinquishes control over its chemical arsenal. The U.N. Security Council is due to lead negotiations this week in New York between the two sides after the Western partners, the U.S., U.K. and France, accused Syrian President Bashar al-Assad in launching the August 21 chemical attack. President Obama appealed to the U.N. to back tough consequences for Syria if Assads regime does not comply to the requirements set by the agreement and urged Russia and Iran to withdraw support for Assad.

The Western partners wanted to drive through a resolution that provides enforcement of the terms in the September 14 Geneva accord, something which the Russian side opposed. Russian Foreign Minister Sergei Lavrov said that the U.S.-European plan to include threats of force in the resolution is “irresponsible and unprofessional”. However, general expectations are for a peaceful outcome, which would further erode oil’s geopolitical premium.

Also negative for oil prices, Irans recently elected centrist President Hassan Rohani sought to improve his relations to the U.S. Iran has agreed to discussions over its nuclear program with six world power officials on Thursday, including U.S. Secretary of State John Kerry, boosting hopes that a generation-long conflict might be closer to an end.

However, the lack of an effort as simple as a handshake between Presidents Obama and Rohani on the sidelines of the U.N. General Assembly was treated by investors as a sign that the mistrust between the two sides would be hard to overcome.

Ric Spooner, chief market analyst at CMC Markets in Sydney, said for Reuters: “There are some hopes there might be a gradual forging of relationship between the west and Iran, though its still very early days. The overall risk of supply disruption in the Middle East is a constant present for the oil market. Its very hard to know what will happen in Iran, except that if there was in fact a stabilization, that would be a significant development.”