DTN Oil

WASHINGTON (DTN) -- Nearest delivered oil futures on the New York Mercantile Exchange and the front-month Brent contract on the Intercontinental Exchange plummeted in early trading Thursday on reports Russia resumed gas flows on the Nord Stream 1 pipeline after completion of planned annual maintenance, easing concern over deepening an energy crisis in Europe, while counter-seasonal builds in gasoline inventories in the United States in July highlight underwhelming demand to further pressure the oil complex.

A resumption of gas flows through the Nord Stream 1 pipeline, which underwent 10 days of maintenance and delivers one-third of Russia's gas to Europe, came as a relief and a surprise for the European bloc. European Union politicians have indicated on multiple occasions they did not expect the pipeline would come back online following annual maintenance, believing Moscow would use the pipeline as an economic weapon for Europe's support of Ukraine.

Gas flows are still well below capacity this summer, according to Klaus Muller, German network regulator president, who estimated the current utilization at about 40%.

"In view of the missing 60% and the political instability, there is no reason yet to give the all-clear," Mueller wrote on Twitter.

On Wednesday, the European Commission proposed a plan to reduce gas use in Europe by 15% until next spring, and said, "All consumers, public administrations, households, owners of public buildings, power suppliers and industry can and should take measures to save gas." The move is designed to protect European bloc from further gas supply cuts from Russia, due to what is described as "the Kremlin's weaponization of gas exports."

EU aims to have gas storage facilities 80% full by Nov. 1, while some EU states have higher targets. Inventories are now about two-thirds full, with a slowing pace of refilling.

In financial markets, the European Central Bank is expected to raise interest rates on Thursday for the first time in 11 years with a bigger-than-anticipated rate hike seen increasingly likely, as policymakers fear losing control of runaway consumer price growth. Inflation in the EU climbed to a record-high 8.6% in June, up from 8.1% in the previous month, dashing hopes for a retreat in high consumer prices.

This comes against a backdrop of slowing growth, the war in Ukraine and threats to energy supplies. The ECB will publish its monetary policy decision after the meeting of the central bank's governing council. A news conference will follow at 14:45 CEST (Central European Summer Time) with ECB President Christine Lagarde. In June, the central bank said it intends to raise the key ECB interest rates by 25 basis points at Thursday's meeting.

Domestically, Energy Information Administration reported Wednesday gasoline stockpiles built by a larger-than-expected 3.5 million barrels (bbl) last week, while demand for motor fuel trails behind the year-ago consumption pace. Days of forward gasoline supply in the United States increased 0.4 days last week and by 1.8 days during the first two weeks of July to 26.2 days, moving above the three-year average for the first time since late March, EIA data shows.

Building gasoline inventory in July has narrowed an inventory deficit against the three-year average by more than half since late June, down 11.2 million bbl to 10.1 million bbl or 4.2%. That's the smallest deficit since the third week of April.

U.S. gasoline supplied to the U.S. market did increase by 459,000 barrels per day (bpd) to 8.521 million bpd last week, EIA reported, but the gain was off a six-month low. Meanwhile, for the four weeks ended July 15, gasoline consumption was down 720,000 bpd or 7.6% against the corresponding period in 2021.

Near 7:30 a.m. EDT, NYMEX August RBOB futures declined 19.73 cents to $3.0781 gallon, while the August ULSD contract slumped 14.13 cents to $3.4630 gallon. West Texas Intermediate September futures fell $3.95 to $95.96 bbl, while Brent contract for September delivery dropped $4 to trade near $102.90 bbl.

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