-China trade relations continue to deteriorate; U.S. WTI -3.7% at $66.56/bbl, Brent -3.6% at $71.93/bbl.
Today, the bulls jumped in after President Donald Trump tweeted that the sanctions were "the most biting sanctions ever imposed".
The US government brought a string of new sanctions against Iran on Tuesday, aiming at Iran's purchases of US dollars - in which oil has always been traded - metals trading, industrial software, coal, and its automobile industry.
While it's true that China's crude oil imports recovered slightly in July, it was still among the lowest so far this year due to a decline in demand from smaller so-called independent "teapot" refineries. US West Texas Intermediate (WTI) crude futures were at $69.35 a barrel, up 18c.
Along with supply risk attributed to over reliance of imported foreign crude, there is the issue of transfer of wealth, again something that plagued the US for almost 40 years and forced its hand as it became involved in countless military endeavors in the Middle East. US refineries produced about 9.9 million barrels of gasoline a day last week, down by about 600,000 barrels compared to the prior week.
Last week, a news report said Chinese officials has rejected USA requests to cut imports of Iranian oil but added that China's imports might not rise further than current levels.
Under the arrangement, Iran's oil payments were deposited into accounts in oil-importing countries and used by Tehran to buy goods.
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United States crude oil supplies dropped by around 1.35 mbpd last week. Exports to China rose to 799,452 bpd in July from 722,100 bpd in June, while Iranian oil sales to India increased by more than 40,000 bpd from June to 706,452 bpd in July, S&P Global Platts data shows.
Both benchmarks tumbled more than 3 percent on Wednesday after USA data showed a smaller-than-expected weekly draw in crude inventories and a surprise build of 2.9 million barrels in gasoline supplies.
US crude production has climbed dramatically, fueled largely by increased output from shale formations, but may now rise more slowly as prices drop.
Observers have dismissed Trump's call for Saudi Arabia to abruptly increase oil production as political "noise".
The market was also bolstered by a report on Tuesday from the American Petroleum Institute, which said crude inventories fell by 6 million barrels in the week to August 3 to 407.2 million. It fell 3.2 per cent to $72.28 a barrel in the previous session. Brent crude, the standard for worldwide oil prices, fell 18 cents to $72.10 per barrel in London.
Gasoline stocks rose by 2.9 million barrels, compared with expectations for a drop of 1.7 million-barrel drop, as forecast in a Reuters poll.
"Past instances of El Nino have resulted in sharp drops in United States residential and commercial heating oil demand and prices", it said.