DTN Oil

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange fell sharply in afternoon trading Wednesday, with both crude benchmarks erasing all OPEC-fueled gains as traders look to deterioration in refining margins over the last few weeks that have prompted some refiners in Asia and European Union to lower processing rates.

West Texas Intermediate and Brent crudes have now erased all the gains triggered by the OPEC+ decision to cut oil production by nearly 1.6 million bpd beginning next week. Concerns over the demand outlook and health of the global economy seem to be driving oil prices lower, countering the effects of restrained supplies from OPEC+ producers. Refiners in Northwest Europe and Asia are suffering from weak profit margins, particularly for making diesel fuel that has taken a hit from reduced manufacturing activity across major economies. Diesel margins for European refiners halved since the start of February, according to Bloomberg News, with speculators amassing their biggest bearish position in Europe's diesel benchmark since 2020. Gasoline margins have also slumped.

Against this background, bullish inventory report from the U.S. Energy Information Administration did little to backstop the slide in oil prices on Wednesday. EIA data this morning revealed U.S. crude oil inventories declined by 5.1 million bbl from the previous week to 460.9 million bbl, 2% below the five-year average. The outsized draw was realized despite a 1 million bbl transfer of crude oil from the nation's Strategic Petroleum Reserve to the commercial side. Similar sales will continue through June, according to the Department of Energy. Domestic oil production decreased 100,000 bpd in the reviewed week to 12.2 million bpd, according to EIA.

In the gasoline complex, EIA data showed stockpiles fell by a sizable 2.4 million bbl to 221.1 million bbl, about 7% below the five-year average. Gasoline demand shot up to the highest level so far this year at 9.511 million bpd, up 992,000 bpd from the prior week.

Distillate fuel oil supplies fell 557,000 bbl to about 12% below the five-year average at 111.5 million bbl. Distillate supplied to the U.S. market, a measure of demand, remained little changed from the prior week at 3.728 million bpd. Total products supplied to the domestic market over the last four-week period averaged 19.8 million bpd, up 2.2% from the same period last year.

Next, traders will turn their focus to U.S. macroeconomic data, with Thursday's release of gross domestic product for the first quarter likely to affect trading through the rest of the week.

The latest tranche of U.S. economic data, particularly Federal Reserve's Regional Banks Manufacturing and Business activity indices, flashed an ongoing economic deceleration. Nevertheless, expectations for further tightening remain high, with most investors expecting a 25-basis point hike in the federal funds rate by the Federal Open Market Committee when they meet on May 2-3.

At settlement, NYMEX June WTI futures fell $2.77 to $74.30 bbl, while international crude benchmark ICE Brent futures for June delivery declined $3.08 to $77.69 bbl. NYMEX May RBOB futures eroded to $2.5494 gallon, down $0.0392 on the session, and May ULSD futures dropped back $0.0781 to $2.3730 gallon.