The GERM Report

-EIA’s estimate on crude oil inventories way overshoots its peers

-US-Iran detente becomes more complicated

The rally in crude oil prices continued unabated in Wednesday, supported by a sizeable drain in commercial crude oil inventories in the United States. Gasoline levels showed a considerable build, though most analysts brushed that off to seasonality. Inter-market and North Dakota, however, is seeing an even bigger bull run as parties scramble to protect themselves given the questionable fate of the Dakota Access crude oil pipeline.

The price for Brent crude oil as up about 0.4% as of 2:40 p.m. ET to trade at $61.48 per barrel. Chart patterns show a steep line on Brent from Feb. 1, though the curve is starting to flatten.

The EIA on Wednesday reported commercial crude oil inventories declined by 6.8 million barrels for the week ending Feb. 5, nearly twice as high as the forecast from the American Petroleum Institute and far more than the 2.7 million barrel drain expected by S&P Global Platts. On the products side, gasoline inventories swelled by 4.2 million barrels, though that may be in part to seasonal factors as well as the harsh winter weather in the United States. Inventories for products could build up steadily on weather-related factors limiting consumer travel in the coming days. Wind chills of 40 degrees below zero are expected in parts of upper Midwest.

Crude oil prices for Bakken, the North Dakota grade of crude oil, shot up as the players involved hedge their bets on DAPL. President Joe Biden already pulled the plug on the Keystone XL oil pipeline and the Dakota artery could be next. Prices there are running up because the line could close and incentivize producers to ask for a premium. Shirin Lakhani at Rapidan told Reuters that North Dakota’s oil would be able to move still through other means should DAPL shut down. Nonetheless, we can’t help but be reminded of the discount for Canadian crude oil that is more or less landlocked relative to the US oil. West Texas Intermediate currently holds an $11 premium on Western Canadian Select.

Elsewhere, the United States is looking to sell illicit Iranian crude oil that it seized recently that Washington would use to support a fund for victims of terrorism. The Biden administration has yet to make an overt effort to draw Iran back to the nuclear negotiation table, keeping up with much of the same pressures used by his predecessor. But time is running out. Iran holds presidential elections as early as June and if hardliner Western adversaries take the helm, it would complicate a full-fledged return to the multilateral nuclear deal that let Iranian oil back on the water. Should that effort drag on, there would be an additional premium for crude oil prices given the involuntary lack of exports that would only compound the balancing act under way by OPEC+.