Oil prices gain as Iran suspends cooperation with UN nuclear watchdog

Oil futures rose on Wednesday as Iran suspended cooperation with the U.N. nuclear watchdog but a surprise build in U.S. crude supplies limited gains.

Brent crude gained $2, or 2.98%, to close at $69.11 a barrel, while U.S. West Texas Intermediate crude rose $2, or 3.06%, to settle at $67.45 a barrel.

Iran enacted a law on Wednesday that stipulates any future inspection of its nuclear sites by the International Atomic Energy Agency needs approval by Tehran’s Supreme National Security Council. The country has accused the agency of siding with Western countries and providing a justification for Israel’s air strikes.

“The market is pricing in some geopolitical risk premium from Iran’s move on the IAEA,” said Giovanni Staunovo, a commodity analyst at UBS. “But this is about sentiment, there are no disruptions to oil.”

Limiting gains on Wednesday, U.S. crude inventories rose by 3.8 million barrels to 419 million barrels last week, the Energy Information Administration said, compared with analysts’ expectations in a Reuters poll for a 1.8 million-barrel draw. Gasoline demand dropped to 8.6 million barrels per day, prompting concerns about consumption in the peak summer driving season.

“During summer time, 9 million (bpd) is basically the line in the sand to define a healthy market,” said Bob Yawger, director of energy futures at Mizuho. “We’re now well below that. That’s not a good sign.”

Meanwhile, planned supply increases by the Organization of the Petroleum Exporting Countries and its allies including Russia, a group known as OPEC+, appear already priced in by investors and are unlikely to catch markets off-guard again imminently, said Priyanka Sachdeva, senior market analyst at brokerage Phillip Nova.

Four OPEC+ sources told Reuters last week the group plans to raise output by 411,000 bpd next month when it meets on July 6, a similar amount to the hikes agreed for May, June and July.

Saudi Arabia lifted shipments in June by 450,000 bpd from May, according to data from Kpler, its biggest increase in more than a year. However, overall OPEC+ exports are relatively flat to slightly down since March, Staunovo said. He expects this trend to persist over the summer as hot weather drives higher energy demand.

The release of the key U.S. monthly employment report on Thursday will shape expectations around the depth and timing of interest rate cuts by the Federal Reserve in the second half of this year, said Tony Sycamore, an analyst at IG.

Lower interest rates could spur economic activity, which would in turn boost oil demand.

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