Oil Price Fundamental Daily Forecast – US Crude Inventory Tightens Amid Jump in Refining Activity

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher for a third straight session while hovering just below a two-month high reached last week.

The trend has been rising this week, but the tone has been cautious. The markets have been underpinned by signs of tight supply while the European Union (EU) tussles with Hungary over plans to ban imports from Russia, the world’s second-largest crude exporter, after it invaded Ukraine.

Perhaps putting a lid on prices are concerns over a global recession and the slow pace that China is moving at to lift its COVID restrictions.

A large draw in U.S. crude stockpiles should have been enough to pop prices higher on Wednesday, but traders seemed to shrug off the news. This suggests that the bigger story is whether the EU agrees on an embargo of Russian crude oil in a timely manner.

At 02:42 GMT, July WTI crude oil is at $110.89, up $0.56 or +0.51%. July Brent crude is trading $114.50, up $0.47 or +0.41%. On Wednesday, the United States Oil Fund ETF (USO) settled at $82.47, up $0.47 or +0.57%.

Hungary Stands in Way of Unanimous Support for EU Sanctions

European Council Charles Michel on Wednesday said he is confident that an agreement can be reached before the council’s next meeting on May 30, Reuters reported.

However, Hungary remains a stumbling block to the unanimous support needed for EU sanctions. Hungary is pressing for about 750 million Euros ($800 million) to upgrade its refineries and expand a pipeline from Croatia to enable it to switch away from Russian oil, according to Reuters.

The EU cracks widened over Ukraine on Thursday after Italy and Hungary urged a truce. Both countries are now urging the EU to call explicitly for a ceasefire in Ukraine and peace talks with Russia, putting themselves at odds with other member states determined to take a hard line with Mosco ahead of a summit next week.

EIA Reports Tight Supply, Rising US Refining Activity

The US Energy Information Administration (EIA) reported on Wednesday that crude stockpiles fell 1 million barrels last week with gasoline inventories also edging lower. Distillate stocks rose 1.7 million barrels. Refiners picked up the pace of processing, boosting capacity use to 93.2%, its highest since December 2019.

Refiners have had to keep facilities running at full-tilt to deal with heavy demand, especially from overseas, as refined product exports rose to more than 6.2 million barrels per day last week. High exports and a reduction in refining capacity means gasoline stocks have dwindled in the United States.

Daily Forecast

The price action indicates a bias to the upside, but investors don’t seem to be willing to chase prices higher until they see the details of an EU agreement to ban Russian energy products.

Also providing some support is the anticipation of the lifting of restrictions in China which could lead to a surge in demand.

Providing additional support are low U.S. gasoline stockpiles and the anticipation of greater demand for fuel as the U.S. begins its summer driving season this weekend.

Traders are expecting this upcoming weekend’s U.S. Memorial Day tradel to be the busiest in two years, causing fuel demand to rise as more drivers hit the road and shake off coronavirus pandemic restrictions despite high fuel prices, Reuters wrote.

According to EIA data, consumption of motor gasoline is set to hit 9.12 million barrels per day (bpd) this month, and reach a peak for this summer at 9.31 million bpd in July.