Oil Down on EIA Report

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 sharply lower Thursday, giving back Wednesday's gains, as Thursday's supply report from the Energy Information Administration showed unexpected builds in gasoline and distillate inventories even as commercial crude supplies declined more than expected.

Traders say the unexpected builds in gasoline and distillate inventory levels are reflective of strong refinery output as refiners emerged from seasonal maintenance ahead of Memorial Day and ramp up gasoline production in advance of the summer driving season.

The 3.6 million bbl decline in commercial crude stocks to 434.5 million bbl came with a boost in refiner demand, with crude inputs up 527,000 bpd to 17.155 million bpd, the highest input rate since the beginning of the year. Crude imports at 7.631 million bpd during the week reviewed are down 528,000 bpd from prior week, while holding below the year-to-date average of 7.87 million bpd.

Distillate fuel supply edged up on the week, posting a 600,000 bbl build to 114.6 million bbl, though still off 32.1 million bbl or 21.9% from 2017, when 146.7 million bbl were in inventory. The build was sharply less than the 1.47 million bbl build reported by the American Petroleum Industry late Wednesday.

At the 2:30 PM ET settlement, NYMEX July WTI futures were valued $1.17 bbl less to $67.04 bbl, while August WTI futures declined $1.17 bbl to $66.91.

ICE July Brent, which expired at the close, settled 9 cents higher to $77.59 bbl, while August Brent slipped 16 cents bbl to $77.56. NYMEX June RBOB futures, which also expired Thursday, settled nearly 2.4 cents lower to $2.1603 gallon. July RBOB futures, which becomes the prompt contract beginning with Friday's session, settled down nearly 1.2 cents to $2.1605 gallon in the seasonally backwardated market.

Expiring NYMEX June ULSD futures settled a little over 4.0 cents lower at $2.1914 gallon while incoming prompt month July ULSD futures settled 2.09 cents less at $2.2046 gallon.

Traders are keeping an eye on the advancing WTI-Brent spread which peaked briefly Thursday at nearly $11 bbl. Many say the growing spread is directly reflective of increased U.S. crude production being hampered by limited pipeline takeaway capacity from production facilities in Texas and Oklahoma and the continued uncertainty regarding ongoing Iran and Venezuelan production declines that are supporting Brent prices. Reports continue to circulate that many U.S. producers are using trucks to move light shale oil supplies to markets because of continued pipeline bottlenecks that are expected to continue well into 2019.

Traders say the growing spread, which has blown out from $3 bbl in early March, makes exports of U.S. crude increasingly profitable in world oil markets. Many expect future EIA reports to continue to show growing exports of U.S. crude, which the EIA reported averaged 2.179 million bpd last week.

Uncertainty remains concerning recent pledges by Organization of the Petroleum Exporting Countries and Russia regarding whether they will leave existing production cuts in place as was most recently reported, or boost production by 300,000 bpd to 800,000 bpd in an effort to ease tight world oil supplies. A pre-OPEC meeting is planned to discuss the supply situation on June 2, well ahead of the actual meeting in Vienna on June 22.

The existing cuts, which trimmed output by 1.8 million bpd against October 2016 levels, were enacted to reduce a perceived world oil supply glut. In defense of its position to potentially raise output, OPEC said earlier much of the previous oil glut that caused prices to tumble in early 2016 has since disappeared and markets were more "stable."