Oil Price Fundamental Daily Forecast – Dangerously Low US Gasoline Stocks Propping Up Prices

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging lower early Thursday after rising more than 5% the previous session. While most of the focus was on the European Union’s haggling over an embargo on Russian oil, the latest figures on U.S. inventories underscored the dynamics pushing prices higher.

At 05:50 GMT, July WTI crude oil is trading $102.37, down $1.66 or -1.60%. July Brent crude oil is at $105.96, down $1.55 or -1.44%. On Wednesday, the United States Oil Fund ETF (USO) settled at $78.19, up $3.66 or +4.91%.

US Crude Stocks Surge on Big Release from Strategic Reserves – EIA

U.S. commercial crude stocks rose last week due to a record release of oil from U.S. strategic reserves, but that could not prevent another drawdown of gasoline supply headed into driving season, the Energy Information Administration said on Wednesday.

Crude inventories rose by 8.5 million barrels in the week to May 6 to 424.2 million barrels, compared with analysts’ expectations in a Reuters poll for a decline of 457,000.

The increase in crude inventories was due to a combination of the 7-million barrel release from the U.S. Strategic Petroleum Reserve and a dip in exports. The release from the SPR was ordered by President Biden weeks ago with the intention of lowering gasoline prices.

The dip in exports was likely caused by lower foreign demand due to the strong U.S. Dollar. The greenback rose to a 20-year high against a basket of major currencies last week, likely dampening demand for the dollar-denominated commodity.

In other news, crude stocks at the Cushing, Oklahoma, delivery hub fell by 587,000 barrels in the last week, EIA said. The EIA also reported net U.S. crude imports rose last week by 632,000 barrels per day, EIA said.

High Demand Leading to Drawdown in Products

Refinery crude runs rose by 230,000 barrels per day in the last week, EIA said, while refinery utilization rates rose by 1.6 percentage points. Overall utilization now sits at 90%, but analysts noted several U.S. facilities have closed in the last couple of years.

The refineries still online are scrambling to meet high demand, leading to drawdowns in energy products. Gasoline stocks declined 3.6-million barrels the week-ending May 6. This dropped inventory to 225 million barrels. This is not good considering the U.S. is on the cusp of driving season.

Distillate stockpiles, which include diesel and heating oil, fell by 913,000 barrels in the week to 104 million barrels, and now sit at their lowest since 2005. East Coast stockpiles again fell to an all-time low.

Short-Term Outlook

The mammoth transfers from the SPR into commercial inventories can’t be ignored, but the market seems to be getting used to them. The move may have helped put a lid on prices, but it has really met its initial expectations. Crude oil prices are still relatively high and gasoline prices are getting ready to breakout to the upside.

Gasoline inventories are sending out a danger signal shortly before the start of the U.S. driving season. This makes $5 gasoline a real target. Furthermore, it’s not going to help the U.S. inflation problem.