Oil Rallies in Early Morning Trade

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Nearest delivery oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange rallied in pre-inventory trade Wednesday after industry data reported a major crude draw in U.S. commercial inventories and larger-than-expected decrease in gasoline supplies for the final week of June, indicating steady gains in driving demand ahead of the pivotal Fourth of July weekend when travel is expected to increase.

Oil futures added to gains following the market's best quarter in nearly three decades after the American Petroleum Institute reported a supersized 8.156 million barrels drop in U.S. commercial crude-oil supplies during the week-ended June 26. If realized in federal data, the drawdown would snap three consecutive weekly builds that each pushed inventories to fresh record-highs, stocking fears over glutted supplies at a time when demand recovery is far from certain. Markets mostly expected crude-oil stocks to have increased by 1.5 million barrels in the reviewed week.

API data also showed gasoline stockpiles were drawdown 2.459 million barrels on the week versus and expected decreased of 1.8 million barrels, while distillate supplies rose 2.638 million barrels, contrasting sharply with consensus for a weekly drawdown.

Analysts polled by S&P Platts Analytics forecast U.S. gasoline demand to increase by 2% during the week ended June 26. If consumers are reluctant to hit the road during the Fourth of July holiday weekend, this could dent expectations for a recovery in gasoline demand this summer.

Thirty-six U.S. states have recorded an uptrend in new COVID-19 cases, with at least 12 of them pausing or reversing re-opening plans. "Clearly we are not in total control right now," Dr. Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases told Senate lawmakers Tuesday. "We're having around 40,000 cases per day, and I would not be surprised if this number rose to 100,000 per day. And so I am very concerned because it could get very bad."

On economic data front, manufacturing activity in Europe and Asia continued to show steady improvements over the month of June, with China's PMI index reported firmly above 50, meaning expansion. Eurozone PMI readings remained in contraction last month, albeit marking a notable improvement since April's nadir. Eurozone final PMI reading for June came at 47.4 after plunging to 39.4 a month prior. In the United States, Institute of Supply Management Institute is due to report its manufacturing index 10 a.m. ET, with a wide consensus range between 46 and 51 reading.

In early trading, U.S. benchmark West Texas Intermediate rallied $0.92 to trade above $40 bbl and new-front month Brent crude for September delivery moved up $0.93 to $42.19 bbl.

NYMEX ULSD August contract traded higher 2.06 cents to near $1.2067 a gallon and front-month RBOB August futures jumped 3.64 cents or 3% to near one-week high $1.2380 gallon.

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

Liubov Georges