By Barani Krishnan

Investing.com – The U.S. government reported the biggest weekly draw of crude oil in more than 3 years, and the market’s reaction: “Meh.”

The Energy Information Administration announced Wednesday, one of the greatest positive surprises in oil bulls’ history. It reported that crude stored in the United States decreased by 4.76 Million barrels over the week ending February 4, which is the highest weekly drop since October 2018.

This drawdown was three times greater than what industry analysts predicted and marks the second weekly decline in crude oil stocks.

That’s not at all. The surprise draw in gasoline stocks was also a result of which distillates saw a decline.

The crude oil prices rose more than $1 per barrel in less than a minute, but then fell almost as dramatically before stabilizing at less than one percent.
After a 30% increase in the previous seven weeks, the market fell as low as 3% during two sessions.

While the mood among those long crude wasn’t necessarily gloomy, it wasn’t exuberant either — certainly not in the vein of last week where no sentiment was spared to push prices to beyond $90 a barrel.

It was obvious and something that the bulls on the market were reluctant to talk about: The resumption in Iran-West nuclear negotiations that raised concerns over the possibility of U.S. oil export sanctions being lifted from Tehran. It’s an eventuality that could add hundreds of thousands of barrels per day onto a market which for 18 months has been tightly controlled by the OPEC+ alliance.

Iran, it is true, is part of OPEC+. But it has been shut off from the legitimate market for exporting its oil since 2018, allowing the rest of the 26-member alliance controlled by Saudi Arabia — with Russia’s assistance — to squeeze consuming countries to pay more for the crude they need. Pay has gone up as the price per barrel of crude U.S. oil rose from its pandemic lows of $40/barrel to $93.17, which was a 7-year record.

Iran has the ability to put between 1 and 2 million barrels of oil per day on the markets. But, less than half the amount is coming out of black market sales. These are evaded by the U.S. Sanctions.

“It’s clear why oil is unable to rally today despite this humongous drawdown in U.S. crude,” said John Kilduff, partner at Again Capital, a New York-based energy hedge fund. “The answer is Iran and talk of some Venezuelan oil likely coming back to the market as well.”

Venezuela is another country that the United States has placed under sanctions. Biden’s administration has been considering an a Chevron Corp (NYSE:) proposed that it can accept and trade Venezuelan crude oil cargoes for a recoupment of unpaid debt, sources close to the discussion told Reuters this Week.

New York-traded settled up 30 cents, or 0.3%, at  $89.66 per barrel. WTI fell 2.7% during two sessions.                                                                                                      

Oil traded in London, which is the international benchmark, closed up 0.9% at $91.55 per barrel, or 77 cents. Between Friday’s settlement, Brent fell 2% on Tuesday.

Even with the Iran-Venezuela issue, EIA data provided a clear demand picture for the market. This was something missing in the late oil rally.

Questions about the demand for oil had cropped up in recent weeks as EIA data showed little reductions in crude stocks and a jump instead in gasoline inventories — despite a plunge in Covid cases and hospital admissions nationwide that would have typically led to more mobility and economic activity.

“Finally, there is some correlation here between the EIA numbers and the dropping US COVID case counts,” Kilduff said, referring to the EIA data.

Last week’s decline in gasoline inventories was 1.64 million barrels, compared to projections of a drop of 1.5 million barrels. The gasoline barrels have risen by 40 million barrels in the 10 weeks up to January 28. 

Gasoline, known as petrol outside of the United States, is America’s premier fuel product. Refiners appear to have been maximizing fuel processing before scheduled plant maintenance in February, as evidenced by the accumulating inventories over the past month. Americans are less likely to drive when the temperatures drop in January.

Stockpiles of distillates, which include diesel and , fell by 929,000 barrels last week against expectations for a draw of 1.5 million and the previous week’s drop of 2.4 million, the EIA report showed. The distillates can also be refined to make diesel, for buses, trains, and ships, or fuel for planes.