DTN Oil

WASHINGTON (DTN) -- Nearest delivered oil futures on the New York Mercantile Exchange and the front-month Brent contract on the Intercontinental Exchange settled lower on Thursday on reports Libyan oil supplies are returning to the global market while gasoline consumption in the United States has softened faster than previously expected.

The softness in U.S. gasoline demand this driving season was confirmed in U.S. Energy Information Administration report released Wednesday that showed gasoline inventories unexpectedly rose 3.5 million barrels (bbl) last week versus estimates for a rise of 400,000 bbl. Furthermore, the large build came despite a cut in refinery runs to 93.7% last week from 94.9% a week earlier, a bearish development in the middle of the summer's U.S. driving season, which runs from the Memorial Day in late May to Labor Day holiday in early September.

Compounding the bearish development, Libya is restoring oil production, with output rising above 700,000 barrels per day (bpd) after restrictions on exports were lifted. Output is expected to return to 1.2 million bpd within a week to 10 days, according to government officials. The premium of the nearest crude futures contract over the next month eased, indicating cooling concerns about market scarcity.

In Europe, resumption of gas flows through the Nord Stream 1 pipeline, which underwent 10 days of maintenance and delivers one-third of Russia's gas to Europe, came as a relief and a surprise for the European bloc. European Union politicians had indicated on multiple occasions that they did not expect the pipeline would come back online following annual maintenance, believing Moscow would use the pipeline as an economic weapon for Europe's support of Ukraine.

Gas flows are still well below capacity this summer, according to Klaus Muller, German network regulator president, who estimated the current utilization at about 40%.

"In view of the missing 60% and the political instability, there is no reason yet to give the all clear," Mueller wrote on Twitter.

On Wednesday, the European Commission proposed a plan to reduce gas use in Europe by 15% until next Spring, and said "all consumers, public administrations, households, owners of public buildings, power suppliers and industry can and should take measures to save gas." The move is designed to protect European bloc from further gas supply cuts from Russia, due to what it described as "the Kremlin's weaponization of gas exports."

EU aims to have gas storage facilities 80% full by Nov. 1, while some EU states have higher targets. Inventories are now about two-thirds full, with a slowing pace of refilling.

In financial markets, the European Central Bank surprised the markets with a larger-than-expected rate hike of 50 basis points, with the rate hike the first in 11 years.

"The Governing Council judged that it is appropriate to take a larger first step on its policy rate normalization path than signaled at its previous meeting," the ECB said in a statement Thursday.

Inflation in the EU climbed to a record-high 8.6% in June, up from 8.1% in the previous month, dashing hopes for a retreat in high consumer prices. This comes against a backdrop of slowing growth, the war in Ukraine and threats to energy supplies.

At settlement, NYMEX September West Texas Intermediate futures declined $3.53 to $96.35 bbl, while the front-month Brent contract fell $3.06 to $103.86 bbl. NYMEX RBOB August futures slumped 12.59 cents to $3.1495 gallon and ULSD futures fell 1.40 cents to $3.5903 gallon.

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