By Barani Krishnan
Investing.com – Oil prices were slumping Tuesday after President Donald Trump said progress has been made with Iran, signaling tensions could ease in the Mideast.
The comment, made at a cabinet meeting, upended the bets of traders who were hoping that a government report due Wednesday would show Tropical Storm Barry might cause a drawdown in oil supplies. The impact of Barry on oil prices was unclear because it proved to be an overrated storm.
U.S. West Texas Intermediate crude was down $2.30 or 3.9%, at $57.28 per barrel by 1:58 PM ET (17:58 GMT).
London-traded Brent, the benchmark for oil outside of the U.S., slid $2.42, or 3.6%, to $64.06.
“On the crude oil front, the market is in chop mode using $60 a barrel as a benchmark to the next move,” said Dan Flynn, analyst at the Price Futures Group brokerage in Chicago.
The U.S. Energy Information Administration has been expected to report a crude inventory drawdown of 3.38 million barrels for last week, according to a consensus of analysts tracked by Investing.com. In the previous week, the EIA reported a drawdown of 9.5 million barrels.
Industry group American Petroleum Institute will reveal at 4:30 PM ET Tuesday a snapshot of what the EIA is likely to report in its dataset for the week ending July 12.
Some analysts say it is difficult to predict the impact of Barry itself storm on oil prices. A key factor in last week’s rally, Barry reached hurricane status -- barely -- as it made landfall in Louisiana on Saturday, only to weaken back quickly to a tropical storm.
Apart from the precautionary shutdown of 1.4 million barrels per day of output, some crude was still awaiting refinement due to the idling of some local refineries.
The reduced refining activity could raise U.S. crude stockpile balances on the Gulf Coast in the short-term, making it hard to match the previous week’s drawdown.
Since Monday, workers have started returning to more than 280 production platforms evacuated ahead of the storm. The U.S. Bureau of Safety and Environmental Enforcement reported that 69% of the output in the Gulf of Mexico remained shut in as of Monday, compared to 73% on Sunday.
Offsetting some of the most positive impacts from the storm, the EIA said in a monthly report released Monday that output from seven major U.S. shale formations was expected to rise to a record 8.55 million barrels per day in August.
The EIA forecast follows reports from both OPEC and the International Energy Agency that implied rising U.S. production could tip world markets back into a glut. It also comes amid evidence that the OPEC-led agreement on output restraint - another key factor in global supply - is being undermined by various countries.