Oil Mixed on Bearish EIA Builds

OLD BRIDGE, N.J. (DTN) -- Oil futures nearest to delivery traded on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled mixed Wednesday following unexpected large builds in crude oil and gasoline inventories as reported in Wednesday's Energy Information Administration weekly supply report.

Traders added that a strong dollar also pulled crude prices lower, as the benchmark currency hit another six-month high Wednesday.

The EIA crude supply increase, showing a 5.8 million bbl build to 438.1 million bbl, contrasted strongly with a reported 1.3 million bbl draw from the American Petroleum Institute. On Tuesday, the expectation for a crude oil draw in the API report contributed to rising futures values ahead of the expiration of the June West Texas Intermediate crude oil contract.

At the 2:30 PM ET settlement, NYMEX July WTI futures settled 36 cents bbl lower in its first full day in the prompt contract month position to $71.84. August WTI futures lost 31 cents to $71.71 bbl.

ICE July Brent made yet another 43-month high settlement on the spot continuous chart, posting a 23 cents gain to $79.80 bbl, while August Brent rose a 25 cents to $79.84 bbl, on ongoing Mideast and Venezuelan supply concerns.

RBOB futures settled a little over a penny lower at $2.2601 gal, while the June ULSD contract settled 0.96 cents higher at $2.2896, reflecting a larger-than-expected increase in distillate exports.

EIA said distillate fuel inventories were again drawn down, falling 951,000 bbl to 114.0 million bbl last week, down 22.1% from a year earlier. Distillate fuel production fell 93,000 bpd to 4.938 million bpd, 5.0% lower than the same week last year. EIA reports distillate fuel imports fell 53,000 bpd to 24,000 bpd on the week, with implied demand for distillates, sliding 585,000 bpd to 3.637 million bpd last week.

EIA reported total motor gasoline inventories increased 1.9 million bbl on the week to 233.9 million bbl, 2.5% lower than the same week in 2017 but still in the upper half of the average range. Production slid 410,000 bpd to 10.052 million bpd last week, 1.9% lower than a year earlier.

Total motor gasoline imports, which include both finished gasoline and gasoline blending components, jumped 342,000 bpd to 1.063 million bpd during the week-ended May 18. Versus a year ago, gasoline imports were up nearly 50%. Implied demand for the fuel rose 158,000 bpd to 9.689 million bpd, 0.2% lower than a year ago.

While prices were off Wednesday, few traders expect values to decline very far given tight supplies and the expectation for increased U.S. oil sanctions on Iran and economic sanctions on Venezuela.

Production in Venezuela, which derives 95% of its foreign currency earnings from oil sales, is now the lowest in decades outside of a brief strike in 2002-03. Analysts expect the pace of decline of oil production to continue to accelerate and by the end of 2018 output could have fallen by several hundred thousand barrels a day.

Brian Whary can be reached at brian.whary@dtn.com