Oil Prices End Lower Despite Surprise Drop in US Crude Inventories as Gasoline Demand Rises

Oil futures finished lower on Wednesday, turning lower despite data showing an unexpected drop in US crude inventories and a further sharp drop in gasoline supplies.

Crude’s downward turn came as a stock market decline dampened sentiment in markets for assets perceived as risky.

price action
  • West Texas Intermediate Crude for delivery in June CL.1,
    +0.60%

    CL00,
    +0.60%

    CLM22,
    +0.60%
    it fell $2.81, or 2.5%, to settle at $109.59 a barrel.

  • July Brent Crude BRN00,
    +1.21%

    BRNN22,
    +1.21%,
    the global benchmark, fell $2.82, or 2.5%, to settle at $109.11 on ICE Futures Europe.

  • Nymex June Gasoline RBM22,
    -0.00%
    it fell 5.6% to close at $3.7206 a gallon. June heating oil HOM22,
    +0.25%
    shed 3.5% at $3.6681 per gallon.

  • NGM22 June Natural Gas Futures,
    -2.22%
    it rose 0.8% to close at $8.368 per million British thermal units.

What drives the markets?

The Energy Information Administration said U.S. crude oil inventories fell 3.4 million barrels in the week ending May 13, while gasoline inventories fell 4.8 million barrels and distillate supplies increased 1.2 million barrels. Analysts surveyed by S&P Global Commodity Insights had expected a 2.1 million-barrel rise in oil inventories, while gasoline was expected to drop 100,000 barrels and distillates were expected to drop 1 million barrels.

The American Petroleum Institute, an industry trade group, reported Tuesday night that US crude oil inventories fell 2.4 million barrels last week, while gasoline inventories fell 5.1 million. of barrels, according to one source. Distillate inventories increased by 1 million barrels.

“Despite a 5 million barrel release from the SPR, higher production and stronger imports, stronger refining activity and crude exports have encouraged a draw in (crude) inventories,” said Matt Smith. , leading oil analyst for the Americas at Kpler, in an email.

The drop in crude “was joined by a solid drop in gasoline inventories, as implicit demand rose again above 9 [million barrels a day] for the first week at 14. Implied demand for distillates also showed a small increase, but inventories still showed a minor build,” he said.

Analysts said the stock market sell-off appeared to take the edge off energy futures. “The data was bullish, but with recession fears back in play, it doesn’t seem to matter.”

US stocks were down sharply, with the Dow Jones Industrial Average DJIA,
-3.57%
falling more than 1,100 points, while the S&P 500 SPX,
-4.04%
slipped 4%.

Earlier gains in crude prices were linked in part to hopes of easing COVID restrictions in China, the world’s biggest crude importer, analysts said. Optimism around “much higher oil demand and prices” is positive for producers, though detrimental to consumer confidence, Stephen Innes, managing partner at SPI Asset Management, wrote in a note to clients.

“And with unaffordable prices at the pump, which are a byproduct of demand exceeding supply, the Fed will be on a mission to raise rates to at least moderate the demand side of the economy, which could eventually trickle down to a form slight demand. destruction where there could be a buyer strike rather than a buyer splurge during peak driving season in the United States,” he said.

Data in the UK on Wednesday showed annual consumer prices rose to a four-decade high, buoyed by higher energy prices.

Crude oil has been pushing the upper end of its trading range for the past few weeks, Ole Hansen, head of commodity strategy at Saxo Bank, said in a note to clients on Wednesday.

“Over the past few weeks, the focus has shifted from a range-bound crude oil market to the commodity market where the cost of gasoline, diesel and jet fuel has risen to levels not seen in years, if they ever did. The combination of refinery maintenance, a post-pandemic reduction in capacity, and self-sanctioning of Russian products have led to incredibly tight markets,” Hansen said.

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