DTN Oil

CRANBURY, N.J. (DTN) -- Nearest-delivered oil futures on the New York Mercantile Exchange and the front-month Brent contract on the Intercontinental Exchange moved lower Wednesday. The losses came on building U.S. oil inventory led by gasoline stocks as demand for the transportation fuel trails the year-ago consumption pace, easing some concern over a tight world oil disposition.

Days of forward gasoline supply in the United States increased 0.4 day last week and by 1.8 days during the first two weeks of July to 26.2 days, moving above the three-year average for the first time since late March, Energy Information Administration data released today show. The expanded cushion followed a 3.5-million-barrel (bbl) build in domestic gasoline inventory last week, while stocks have increased a sharp 9.3 million bbl or 4.3% in July to a 228.435-million-bbl 11-week high.

Building gasoline inventory in July is counter-seasonal and has narrowed an inventory deficit against the three-year average by more than half since late June, down 11.2 million bbl to 10.1 million bbl or 4.2%. That's the smallest deficit since the third week of April.

On July 7, EIA analysis determined U.S. gasoline consumption after growing against year ago from the second half of 2021 through the first quarter declined against 2021 from April through early July, and, at 8.9 million bpd over the period, was the weakest consumption rate since 2001 after stripping out 2020 when the country went into pandemic lockdown. Earlier this week, they determined improved vehicle efficiency offset more miles traveled in April, with miles traveled on U.S. roadways up 1.6% in April against year ago while vehicle mile efficiency improved 2%.

Retail gasoline prices spiked from $4.178 gallon on April 30 to a record-high $5.016 gallon in mid-June, according to AAA, helping drive inflation while also seen affecting driving demand. While gasoline demand is largely inelastic in the short-term, the ability for many U.S. workers to work from home is seen to have slowed gasoline consumption, and with it, helped pressure prices, a Wall Street Journal article, "Consumers Can Say 'No' to Gas Prices," published Tuesday suggests. The article cites Massachusetts Institute of Technology economist Christopher Knittel suggesting the work-from-home option likely prompted some workers to work less in the office when gasoline prices spiked in June, increasing price elasticity. Indeed, AAA shows regular grade retail gasoline prices have fallen for 36 consecutive days through July 20 since the record high to $4.467 gallon.

The suggestion coincides with widespread reports of the challenges some employers have had in prompting workers to return to the office, especially in larger cities where crime has spiked.

U.S. gasoline supplied to the U.S. market did increase by 459,000 barrels per day (bpd) to 8.521 million bpd last week, EIA reported Wednesday, but the gain was off a six-month low. Meanwhile, for the four weeks ended July 15, gasoline consumption was down 720,000 bpd or 7.6% against the corresponding period in 2021.

NYMEX August RBOB futures settled down 3.21 cents at $3.2754 gallon, while the August ULSD contract ended 2.25 cents lower at $3.6043 gallon. A 1.3-million-bbl draw in distillate fuel inventory to 112.5 million bbl last week failed to lift ULSD futures, which have now fallen every day this week.

The sharp build in gasoline stocks was also a key driver in pushing total U.S. crude oil and refined fuels inventory up for a ninth consecutive week through July 15, last measured at a 1.209-billion-bbl eight-month high. Building gasoline stocks offset a 400,000-bbl draw in U.S. commercial crude inventories, and another 5-million-bbl pull from the Strategic Petroleum Reserve last week, while domestic crude production fell 100,000 bpd to 12 million bpd.

A stronger U.S. dollar index, up 0.38% to 106.953, also pressured West Texas Intermediate futures, with the August contract expiring down $1.96 to $102.26 bbl. September WTI futures narrowed its discount to August delivery to $2.38 bbl with settlement at $99.88 bbl. ICE September Brent futures settled down $0.43 at $106.92 bbl.

Brian L. Milne can be reached at brian.milne@dtn.com

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