BEIJING/SINGAPORE: Oil prices eased on Wednesday from a multi-day rally as investors digested the ramifications of the United Arab Emirates' surprise decision to quit OPEC, though supply disruptions from the stalemated Iran war support the market.
Brent crude futures for June dipped 1 cent to $111.25 a barrel by 0413 GMT, having climbed for the previous seven sessions. The June contract expires on Thursday and the more active July contract down 28 cents at $104.12.
Wednesday's slight decrease could be partly linked to the UAE's surprising decision to leave producer cartel OPEC, said LSEG senior analyst Anh Pham, as it points to a stronger supply outlook when the country is free of the group’s output quotas.
"However, this effect is not immediate, as the incremental barrels may not be deliverable in the near term due to the ongoing Hormuz blockade," he added.
"So while prices are down slightly, this appears to be more of a correction from earlier gains, with Brent still holding at elevated levels around $110 per barrel."
U.S. President Donald Trump has told aides to prepare for an extended blockade of Iran, the Wall Street Journal said on Tuesday, citing U.S. officials.
Trump is opting to keep squeezing Iran's economy and oil exports by blocking shipping traffic with its ports, it added.
Despite a ceasefire in the U.S.-Israeli war with Iran, the conflict is deadlocked as both sides seek a formal end to the fighting.
Iran has shut the Strait of Hormuz, a conduit for about 20% of global oil and LNG supplies, and the United States blockaded Iranian ports.
"The recent rise in oil prices has been driven by the Strait blockade," said Yang An, an analyst at Haitong Futures. "If Trump is prepared to extend the blockade, supply disruptions would worsen further and continue to push oil prices higher."
The U.S. is pressing Iran to end what it says is a nuclear weapons programme, while Iran wants some form of reparations for the latest round of fighting, an easing of economic sanctions and some form of control over the Strait of Hormuz.
The Hormuz shutdown is prompting pulls from global inventories, with market sources saying late on Tuesday the American Petroleum Institute reported U.S. crude oil inventories fell for a second week.
Crude stocks fell by 1.79 million barrels in the week ended April 24, the sources said. Gasoline inventories fell by 8.47 million barrels, while distillate inventories fell by 2.60 million barrels. - Reuters
