Price action

• West Texas Intermediate crude for September delivery
  CL.1,
  +1.28%

  CL00,
  +1.28%

  CLU22,
  +1.28%
  rose $1.58, or 1.8%, to settle at $88.11 a barrel on the New York Mercantile Exchange. Prices, which posted losses in each of the previous three sessions, had settled Tuesday at their lowest since January.

• October Brent crude
  BRN00,
  -0.50%

  BRNV22,
  -0.50%,
  the global benchmark, climbed $1.31, or 1.4%, at $93.65 a barrel on ICE Futures Europe.

• Back on Nymex, September gasoline
  RBU22,
  +0.63%
  rose 1.2% to $2.9345 a gallon, while September heating oil
  HOU22,
  +3.39%
  added 3.9% at $3.6174 a gallon.

• September natural gas
  NGU22,
  -1.16%
  fell 0.9% to settle at $9.244 per million British thermal units, a day after prices gained 6.9% to end at their highest since August 2008.

Market drivers

Oil futures have retreated sharply from near 14-year highs in early March that saw the most actively traded WTI contract briefly breach the $130 level. Brent and WTI have both erased the spike seen after Russia’s Feb. 24 invasion of Ukraine.

On Wednesday, crude prices ended higher following sharp declines over the past three sessions.

“The biggest question hanging over the market this week is whether a new Iranian nuclear deal could be agreed to by U.S. and Iranian leadership after months of talks that had appeared to offer little progress,” said Robbie Fraser, manager, global research & analytics at Schneider Electric, in market update.

Iran late Monday responded to what had been described as a final road map from the European Union toward restoring the nuclear deal following former U.S. President Donald Trump’s 2018 decision to withdraw and reimpose sanctions on Tehran. The response encouraged Western negotiators because Tehran, while not offering a definitive “yes,” didn’t raise new objections, the New York Times reported.

“The market is positioning itself as though a deal is on the cards, but the risk is that if parties fail to come to a deal, we would likely see a reversal in the recent price action,” said Warren Patterson, head of commodities strategy at ING, in a note.

“While Iran appears fairly positive on a deal, it is still unknown where the U.S. stands with the proposal. Given the more recent weakness that we have seen in oil and gasoline prices, the U.S. may be less willing to make big concessions,” he wrote.

Meanwhile, “demand concerns continue to linger, particularly in light of weaker consumption data from China for July,” said Schneider Electric’s Fraser.

Crude’s pullback has done significant damage on the charts.

“Crude Oil is staring at the abyss here, with no obvious support level until the $62.43 previous wave low from December 2. Crude Oil has already traded below all moving averages and the retracements,” said Robert Yawger, executive director for oil futures at Mizuho Securities, in a note, referring to WTI.

Crude came under pressure Monday after a round of downbeat China data that underlined worries overdemand.

Supply data

The Energy Information Administration on Wednesday reported that U.S. crude inventories fell by 7.1 million barrels for the week ended Aug. 12.

On average, analysts expected a decline of 1.7 million barrels, according to a poll conducted by S&P Global Commodity Insights. The American Petroleum Institute late Tuesday said U.S. crude inventories fell by 448,000 barrels last week, according to Dow Jones Newswires.

The EIA report also showed a supply decline of 4.6 million barrels for gasoline, while distillate stocks edged up by 800,000 barrels. The analyst survey called for an inventory decline of 1.7 million barrels for gasoline and an increase of 400,000 barrels for distillates.

There was drop in refining activity and “another solid implied demand number for gasoline resulted in a chunky draw to gasoline inventories,” said Matt Smith, lead oil analyst, Americas, at Kpler. “Implied demand for distillate edged up, but so did inventories.” 

Crude stocks at the Cushing, Okla., Nymex delivery hub climbed by 200,000 barrels for the week, while crude stocks in the Strategic Petroleum Reserve fell by 3.4 million barrels, the EIA said. Crude exports, meanwhile, rose by nearly 2.9 million barrels to 5 million barrels last week.

“We are seeing a lot of exports out of the United States for crude,” Tariq Zahir, managing member at Tyche Capital Advisors, told MarketWatch.

“With [Atlantic] hurricane season about to go into full swing, the risk to prices are to the upside in the short term,” he said.