Oil Softens After API Shows Builds in Crude, Product Stocks

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange slipped in early trading Thursday after the American Petroleum Institute reported U.S. commercial crude and gasoline supplies unexpectedly rose during the final full week of May and traders pared back bets on deeper production cuts from the Saudi-led OPEC+ alliance at their June 4 meeting.

API data showed commercial crude inventory increased 5.202 million barrels (bbl) during the week ended May 26, contrary to calls for a 1.4-million-bbl draw. Stocks at the Cushing, Oklahoma, tank farm -- the NYMEX delivery point for West Texas Intermediate futures -- accounted for 1.777 million bbl of the increase. Further adding to the bearishness, gasoline inventory built by 1.891 million bbl through May 26, missing an expected draw of 900,000 bbl. Distillate inventory posted a build of 1.849 million bbl last week, which was more than three times an anticipated increase of 500,000 bbl.

Next, traders await the release of official inventory data from the U.S. Energy Information Administration scheduled for an 11 a.m. EDT release, delayed one day due to observance of Memorial Day holiday Monday.

Underlying Thursday's morning losses in the oil complex, media reports indicate OPEC+ is unlikely to deepen production cuts at their June 4 meeting, according to sources familiar with ongoing negotiations. Speculation has grown in recent days about a potential rift between the group's two largest oil producers -- Russia and Saudi Arabia.

Last week, Saudi Oil Minister Prince Abdulaziz bin Salman suggested OPEC+ might go for another production cut to flush out short sellers, warning them against "ouching." Less than 48 hours after those comments, Russian Oil Minister Alexander Novak dismissed the need for more cuts, saying the oil market is quite balanced. Adding to the confusion, Russian President Vladimir Putin, speaking at a conference in Moscow on May 24, said oil prices were approaching "economically justified" levels and that Russia was continuing to meet its commitments on energy supplies. These diametrically opposed positions between two of the world's largest oil producers stoked fears of another breakdown between Moscow and Riyadh that led to a painful price war in April 2020.

Arguably, Moscow has made little progress on pledged production cuts and has very little appetite to go for additional commitments after it captured considerable market share from Saudi Arabia by selling cheap oil to Asian consumers. Saudi Arbia, meanwhile, signaled on multiple occasions that it prefers a higher price instead of greater volume to finance "Vision 2030" -- an ambitious reform project previously unveiled by Crown Prince Mohammad Bin Salman.

Since October 2022, OPEC+ has reduced production by 3.5 million barrels per day (bpd), a sizable chunk of its collective oil output. Nonetheless, Brent oil prices fell from $83 before the October cut to their current level of $72.66 bbl.

In early trading, WTI July futures slipped $0.35 bbl to trade near $67.72 bbl and the new front month August Brent contract softened to $72.23 bbl, down $0.42 bbl in overnight trade. NYMEX RBOB July futures declined $0.0301 gallon to $2.4137 gallon and NYMEX ULSD futures traded near $2.2447 gallon.

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

Liubov Georges