Oil prices fluctuated as traders weighed a large increase in US crude stockpiles against renewed US efforts to restrict Iranian crude exports.

West Texas Intermediate crude prices fluctuated between gains and losses, trading above $68 per barrel, after two days of gains. US crude oil stocks rose by 7.1 million barrels last week, the largest increase since January, according to the Energy Information Administration (EIA) on Wednesday. At the same time, the US Treasury Department imposed sanctions on 22 foreign entities for their role in facilitating Iranian oil sales.

"Despite the significant week-over-week decline in imports, a slight decline in refining activity and sluggish exports have driven a sizable increase in crude oil inventories," said Matt Smith, chief oil analyst for Americas at Kpler. The sanctions helped ease investor uncertainty surrounding US policy on Iranian exports, just weeks after US President Donald Trump rattled markets by encouraging China to continue buying Tehran's crude. The surprise announcement marked a reversal of years of US sanctions and temporarily eased fears that the Israel-Iran conflict would significantly disrupt supply.

However, the sanctions news will have limited upside until the market sees a material loss in barrels, said Joe DeLaura, global energy strategist at Rabobank. "It's all kayfabe," he said. "By the end of the week, all those sanctioned companies will be operating under new names in new locations, and the oil will flow."

Repeated Houthi attacks on cargo ships in the Red Sea, a key oil trade route, have also notably failed to inject a risk premium into oil prices. The attacks have so far killed at least three crew members and sunk two vessels. "Most ships have already avoided the Red Sea," said Rebecca Babin, senior energy trader at CIBC Private Wealth Group. This development "suggests an escalation, but it doesn't really change the supply-demand picture."

Oil surged during the Israel-Iran conflict, with Brent reaching over $80 per barrel, but prices have since fallen sharply. Attention now turns to OPEC+ supply and US trade policy, with many analysts highlighting short-term market tightness.

The EIA data somewhat undercuts earlier comments from UAE Energy Minister Suhail Al Mazrouei that the lack of a massive inventory buildup indicates the market needs the production being revived by OPEC+, while Saudi Aramco sees healthy global demand despite trade and tariff challenges.

Meanwhile, another US government report revealed that diesel inventories are at their lowest seasonal level since 1996, as well as their lowest total level since April 2005. Saudi Aramco expects global oil demand to rise by around 1.2 million to 1.3 million barrels per day for the remainder of the year, after growing by around 1.5 million in the first quarter. (alg)

Source: Bloomberg