DTN Oil

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange settled Wednesday's session higher, with the front-month RBOB contact rallying as much as 1.5% supported by rapidly declining U.S. crude and petroleum product supplies as demand for motor gasoline held above 9 million barrels per day (bpd) for the second consecutive week going into the Memorial Day holiday weekend.

NYMEX RBOB June contact settled the session 3.28 cents higher near three-year high $2.1501 gallon after weekly inventory data released midmorning from Energy Information Administration showed nationwide gasoline stockpiles declined a more than expected 1.7 million barrels (bbl) in the final week of May to about 3% below the five-year average 232.5 million bbl. Gasoline supplied to the U.S. market, a measure for demand, improved 255,000 barrels per day (bpd) from the previous week to a fresh 14-month high 9.479 million bpd after the implied demand rate spiked 424,000 bpd in the week prior, boosted by panic buying amid the Colonial Pipeline closure.

Seasonally, gasoline consumption rises beginning around Memorial Day -- which falls on Monday (5/31) this year -- when people take to the roads, with early indicators pointing to strong demand for this holiday weekend. Apple mobility data indicate traffic activity now stands 40% above the Jan. 13, 2020, baseline -- a fresh post-pandemic high.

Demand for diesel also advanced 403,000 barrels per day (bpd) from the previous week to 4.461 million bpd, up 9% from the prior. Distillate consumption closely correlates with economic activity, with the latest data suggesting robust growth in both manufacturing and services sectors.

Nationwide diesel stocks now stand 8% below the five-year average at 129.1 million bbl, down 3 million bbl from the previous week. Spurred by the bullish data, front-month ULSD futures ended the session 0.98 cents higher at $2.0452 gallon.

Gains in the crude futures were limited on the session by signs of progress in Iran's nuclear talks held in Vienna this week. The negotiations are believed to be in the fifth and final stage Wednesday, with Iranian President Hassan Rouhani suggesting the parties are inching closer to hammer out an agreement. The talks gained some momentum after the International Atomic Energy Agency and Iran agreed on a month by month extension of a monitoring deal that allows the IAEA to access footage taken from cameras at Iran's nuclear sites.

Last week, Rouhani said the United States agreed to lift all sanctions targeting Iran's oil, petrochemicals, and shipping. If a deal is realized, S&P Platts estimates Iranian crude and condensate exports would grow from 800,000 bpd in April to 1.4 million bpd in December and 2 million bpd by July 2022.

Russia's Deputy Minister Alexander Novak suggested Wednesday that Organization of the Petroleum Exporting Counties together with allies must consider the potential return of Iranian barrels on the global market.

"Iran has the potential for a recovery. We must consider their actual production levels and calculate everything," said Novak.

He added the global oil market today is in a deficit of "around 1 million bpd," which is something the OPEC+ group will need to look at when it meets on May 31 and June 1st.

"We need to understand how to cover a further growth in demand," said Novak.

In market-on-close trade, NYMEX July West Texas Intermediate edged slightly higher to settle at $66.21 bbl, up 14 cents on the session, while the international crude benchmark Brent contract for July delivery posted a 22 cents gain for a $68.87 bbl settlement.

Liubov Georges can be reached at liubov.georges@dtn.com