DTN Oil

Troy Vincent
DTN Analyst

LOUISVILLE (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange settled lower Wednesday as the Energy Information Administration's reported draw to gasoline stocks came in well below American Petroleum Institute expectations, distillate fuel oil demand continued to languish, and refinery strikes in France drug on leading to a surplus of crude availability from West Africa, the North Sea and Mediterranean.

Wednesday's EIA report showed a 7.5 million barrels (bbl) draw to commercial crude stocks in the week ending March 24, with total petroleum stocks falling over 10 million bbl for a second-consecutive week. Commercial crude stocks remain 15.5%, or 63.7 million bbl, above year-ago levels for the seasonal period. With Wednesday's reported 2.9 million bbl draw to gasoline inventories, stocks of the fuel are now at their lowest of the year and are 5.1%, or 12.1 million bbl, below year-ago levels. Distillate fuel oil stocks remain historically low but with Wednesday's reported 300,000 bbl build, stocks are still 3.2 million bbl, or 2.8%, above year-ago levels.

Refiners emerging from maintenance boosted crude demand at U.S. refiners by 437,000 barrels per day (bpd) week-on-week, bringing refinery utilization to 90.3%. Offline capacity due to maintenance season has clearly peaked and runs are squarely within their seasonally normal strengthening trend. With the WTI 3:2:1 crack spread currently at nearly $39.00 bbl and U.S. natural gas prices plummeting, U.S. refiners are set to run hard as they emerge from maintenance to take advantage of wide margins and strong export demand.

This week's EIA report showed gasoline product supplied continuing to follow the seasonally normal trend of moving higher, with the four-week average measure for the demand proxy in line with year-ago levels for the period at 8.8 million bpd. Given the decline in retail gasoline prices over the past year we should expect demand to begin to outpace year-ago levels as we move through the spring. With the services sector of the economy booming and some businesses moving back toward in-office as opposed to work-from-home activity, we should see a more seasonally normal steady rise in gasoline demand as we work through the spring when compared to last year. Gasoline imports were reported rebounding in Wednesday's report, but the four-week average measure of gasoline imports continues to hold at its lowest since 2017 for the seasonal period at just 560,000 bpd. Meanwhile, the EIA's four-week average measure of finished gasoline exports is its highest for the seasonal period on record at 860,000 bpd.

Distillate fuel oil product supplied weakened further to 3.7 million bpd on the weekly reading, and the four-week average measure continues to show the demand proxy 419,000 bpd, or 10%, below year-ago levels. This continues to speak to what macroeconomic data suggests is an outright recession in U.S. industrial and manufacturing activity. The four-week average measure for distillate fuel oil exports continued to push higher, and at just over 1.1 million bpd the measure is in line with year-ago levels. Meanwhile, distillate fuel oil imports have sank on the four-week average measure to just 166,000 bpd -- their weakest for the seasonal period since 2017.

While U.S. stock draws have been large over the past two weeks, the market is eyeing another 26 million bbl of SPR crude set to be released starting as early as late this week. In addition, it has been reported Wednesday that France is set to release at least 10 million bbl of oil stocks amid the continued strikes across the country that are preventing imports from coming onshore.

At settlement, NYMEX May WTI futures declined $0.26 to $72.94 bbl. The May Brent contract lost $0.28 on the day to settle at $78.27 bbl.

NYMEX April RBOB futures fell $0.0446 to settle at $2.6675 gallon. April ULSD futures settled $0.1178 lower on the day at $2.6518 gallon.

Troy Vincent can be reached at troy.vincent@dtn.com