DTN Oil

WASHINGTON (DTN) -- In afternoon trade Wednesday, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange posted modest losses, with the U.S. crude benchmark slipping below $70 barrel (bbl) after government data showed implied gasoline demand dropped below 8.5 million barrels per day (bpd) during the week ended June 4 while distillate fuel supplied to the U.S. market declined to the lowest rate since the beginning of the year sparked concern demand this summer might not be as strong as previously thought.

Wednesday's inventory report from the U.S. Energy Information Administration showed large builds in product inventory accompanied with surprisingly sluggish demand for both gasoline and diesel that countered the larger-than-expected draw from commercial crude oil inventories. Considering EIA calculates their product supplied to market statistics weekly, the sharp shift in Wednesday's report stoked speculation the data might have been distorted by the Colonial Pipeline outage in early May, and the replenishment of supply in the affected areas in the weeks following the outage.

Digging into the data, EIA reported U.S. total crude and oil products inventories swelled by more than 15 million bbl in the reviewed week, with 7 million bbl accumulating in gasoline stockpiles alone. Driving activity across the United States declined in line with the seasonal trend following Memorial Day weekend, according to Apple mobility data, and was slightly below the comparable 2019 level. On Tuesday, EIA projected demand for motor gasoline will average 9.1 million bpd this summer, which is 1.3 million bpd, which is still about 400,000 bpd less than summer 2019.

Weighed down by the bearish data, NYMEX July RBOB gasoline contact declined 1.65 cents on the session to $2.2025 gallon and the front-month ULSD contract fell 0.55 cents to $2.1295. NYMEX July West Texas Intermediate fell below $70 bbl for a $69.96 bbl settlement, while the international crude benchmark contract for August delivery settled flat at $72.22 bbl.

Offsetting losses for crude futures, inventory data showed U.S. commercial crude oil supplies dropped a larger-than-expected 5.2 million bbl during the week of June 4 following a draw of similar size in the week prior. At 474 million bbl, commercial crude oil stocks have now fallen about 4% below the five-year average. The draw was realized as refiners hiked run rates to the highest daily rate in 18 months at 91.6%.

Earlier in the session, oil futures traded modestly higher amid signs that some countries in the European Union and North America are prepared to ease COVID-19 travel restrictions that are seen boosting demand for jet fuel and overall economic activity. Canada on Wednesday announced it would lift quarantine protocols for fully vaccinated travelers starting in early July.

"The first step ... is to allow fully vaccinated individuals currently permitted to enter Canada to do so without the requirement to stay in government-authorized accommodation," Health Minister Patty Hajdu told reporters on Wednesday.

Many EU area countries are now open for tourism for fully vaccinated travelers, some only to other EU countries and some to anyone with a negative COVID-19 test result. Many more countries are expected to announce further re-openings throughout June and July.

This week, the Biden administration said it is forming expert working groups with Canada, Mexico, the EU, and the United Kingdom to determine how best to safely restart travel after 15 months of pandemic restrictions.

Restart of international travel is seen as critical to a recovery in global oil demand, with jet fuel consumption lagging far behind that of gasoline and diesel fuels. EIA projects global oil demand to average 97.67 million bpd before breaching 100 million bpd in 2021.

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