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Crude oil futures shook off early losses to settle higher Wednesday after U.S. government data showed a weekly decline in domestic crude inventories.
The 1.4M-barrel drop in stocks, accompanied by an increase in refinery use, followed the previous week’s massive 7.3M-barrel build; on the bearish side was a 1.9M-barrel increase in stocks at the Cushing, Oklahoma, delivery hub.
“Stronger refining activity and exports have encouraged a minor draw to crude inventories, helping unwind some of last week’s large build,” Kpler analyst Matt Smith said, according to Reuters.
The geopolitical risk premium, meanwhile, has “plenty of room to the downside if the Israelis and Hamas can come to a ceasefire agreement in coming days,” Mizuho analyst Robert Yawger said.
Front-month Nymex crude (CL1:COM) for June delivery closed +0.8% to $78.99/bbl, its best settlement in a week, while front-month July Brent crude (CO1:COM) finished +0.5% to $83.58/bbl.
ETFs: (NYSEARCA:USO), (BNO), (UCO), (SCO),(USL), (DBO), (DRIP), (GUSH), (NRGU), (USOI), (UGA)
Meanwhile, U.S. gasoline and diesel demand are at their weakest seasonal level since the pandemic, according to new data from the Energy Information Administration, with the four-week average demand for gasoline of 8.63M bbl/day (bpd) in the week ended May 3 the lowest reading for the start of May since 2020.
Four-week average demand for distillate fuels, which includes diesel and heating oil, was 3.6M bbl/day, also the weakest seasonal level since the pandemic.
“The gasoline situation was going to be looked at by everybody and it definitely disappointed,” Yawger said, according to Reuters. “If that’s indicative of the performance of the economy, that’s bad all around.”
The drop in demand is hitting refining margins, with the U.S. 3-2-1 spread trading below $26.50/bbl on Wednesday for the first time since February, Reuters reported.
Gasoline stocks rose by 915K barrels to 228M barrels and distillate fuel oil stocks rose by 560K barrels to 116.4M barrels last week, the highest seasonal level in three years for both.
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