Oil Gains on Supply Concerns, Bullish US Inventory Data

VIENNA (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange continued higher in early Wednesday morning trade, supported by a bullish API inventory report showing large draws from U.S. crude oil and gasoline stocks.

The American Petroleum Institute on Tuesday reported hefty draws in U.S. oil inventories. The institute estimated commercial crude oil inventories shrank by more than 6 million barrels (bbl) in the week ended March 24, with stocks at Cushing declining by some 2.4 million bbl. The API reported a modest 550,000-bbl build to middle distillate inventories, while seeing gasoline stocks recede by close to 5.9 million bbl. The U.S. Energy Information Administration last week reported a 6.4 million bbl decline in gasoline inventories, the largest weekly draw since September 2021. If confirmed by Wednesday's EIA report scheduled for 10:30 a.m. EDT release, this would bring total gasoline stocks to 223.7 million bbl, some 15 million bbl, or 6.3%, below year-ago levels, trailing the five-year average by 5.8%.

Oil prices turned around last week after dropping to a 15-month low on March 20 amid the recent selloff propelled by the banking turmoil in which overly long speculators were flushed out of the market. Despite a series of supply concerns manifesting over the past week, from a new oil tax in Brazil to the disruption of Kurdish oil flows out of Iraq, crude oil futures recorded only minimal gains in the past two days, even reacting rather modestly to Tuesday's bullish API report. While refiners coming out of maintenance should lend support from the demand side, the Atlantic Basin is still flush with crude oil. The announced cut to Russian production has yet to be reflected in the physical market, and both OPEC and the U.S. government recently signaled they won't help bail out prices for the foreseeable future, be it via further production cuts or refilling the SPR, respectively.

Oil product prices are finding support from the ongoing refinery outages in France, which, combined with strong exports and high freight rates, are denting U.S. gasoline imports and pressuring domestic inventories. Expectations of seasonally low inventories are keeping crack spreads elevated, with the 3:2:1 crack spread versus WTI hitting a two-month high of $41.50 bbl Tuesday.

Near 7:45 a.m. EDT, WTI for May delivery advanced $0.75 to $73.95 bbl, and the Brent front-month contract gained $0.62 to $79.27 bbl. NYMEX RBOB April futures were up $0.003 to $2.715 gallon, while ULSD April futures retreated $0.008 to $2.761 gallon.

Karim Bastati can be reached at Karim.Bastati@dtn.com