DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange fell more than 2% in market-on-close trade Tuesday in reaction to reports suggesting the Biden administration is prepared to lift some sanctions on Venezuelan oil exports amid a tightening global market as traders positioned ahead of the release of weekly U.S. inventory report.

Traders will closely monitor the weekly change for gasoline and distillate stocks in the United States after inventories have fallen to critically low levels ahead of the start of summer travel season. Gasoline stockpiles are seen to have been drawn down by 1 million barrels (bbl) for the week-ended May 13 after plunging 3.6 million bbl during the first week of the month.

Demand for motor gasoline regained momentum in the second week of May, according to DTN Refined Fuels Demand data, increasing 2.7% from the previous week. At 225 million bbl, gasoline stockpiles currently stand at the lowest level this year and about 5% below the five-year average.

The situation is more dire for distillate stocks that fell to their lowest level in 17 years in early May and are about 23% below the five-year average. U.S. distillate inventories likely halted a destocking pattern near 104 million bbl last week, according to industry analysts.

Commercial crude oil inventories are projected to have climbed by 1.4 million bbl for the week ended May 13, although estimates range from a decrease of 1.6 million bbl to an increase of 4 million bbl. Refinery tun rates likely rose by 0.6% from the previous week to 90.6% of capacity.

The closely watched report from the American Petroleum Institute is scheduled for release at 4:30 p.m. ET, followed by official data from the U.S. Energy Information Administration Wednesday morning.

Media airwaves were hit with reports Tuesday afternoon that Biden administration will begin to ease some sanctions on Venezuelan oil exports to encourage ongoing dialogue between the South American President Nicolas Maduro and the opposition. Although details of negotiations have not been made public, speculation has swirled for months that the White House is prepared to replace some Russian oil exports sanctioned in response to President Vladimir Putin's invasion of Ukraine with Venezuelan barrels. Previously, the White House allowed Chevron to negotiate a license with Venezuelan state-owned oil company PDVSA but has not allowed entry into any production agreement. That might change this week.

According to the latest data, Venezuela's crude oil production now stands at its lowest level in more than 50 years. Output in April averaged just 668,000 barrels per day (bpd), according to OPEC, down markedly from a presanction high of 2.3 million bpd in 2018.

Also this week, oil traders are monitoring tentative signs of a reopening of China's economy after months of draconian lockdowns sent its manufacturing sector into the worst recession since the beginning of the pandemic in early 2020. Authorities in Shanghai, a city of 25 million, reported a third consecutive day with no new COVID infections on Monday -- the first step for city authorities to begin easing quarantine controls. On Monday, China reported 1,049 new COVID cases, down from 30,000 infections a day seen over a month ago. Traders bet that with China's reopening, Asian oil demand would accelerate into the summer months, potentially exacerbating global market tightness.

At settlement, NYMEX June West Texas Intermediate plunged $1.80 bbl to $112.40 bbl, and Brent crude declined to $111.93 bbl, down $2.31 bbl. NYMEX June RBOB futures retreated 8.12 cents from Monday's $4.0640 record-high settlement on the spot continuous chart to $3.9417 gallon, while the June ULSD contract dropped 10.82 cents to $3.7993 gallon.

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