Oil futures rose for a third straight day Wednesday, with U.S. prices on track to score their highest finish in over two years, buoyed by expectations for higher demand as the European and U.S. economies reopen and the biggest weekly drop in U.S. crude supplies since January.
“Stronger refinery runs and hefty exports have resulted in a solid draw to crude inventories,” said Matt Smith, director of commodity research at ClipperData. “As refineries gear up for a monumental summer driving season, refining activity should only increase from hereon out, while Asian demand is set to bolster U.S. oil exports going forward — inventory draws ahoy.”
On Wednesday, the Energy Information Administration reported that U.S. crude inventories fell by 8 million barrels for the week ended April 30. That was the biggest weekly decline since January.
On average, analysts polled by S&P Global Platts forecast a decline of 3.9 million barrels for crude stocks, while the American Petroleum Institute on Tuesday reported a 7.7 million-barrel drop.
West Texas Intermediate crude for June delivery the U.S. benchmark, rose 53 cents, or 0.8%, to $66.22 a barrel on the New York Mercantile Exchange. A settlement above the $66.09 seen in March would be the highest for a front-month contract since April 2019, according to FactSet data.
July Brent was up 75 cents, or 1.1%, at $69.63 a barrel on ICE Futures Europe, on track for the highest settlement since March.
“Clearly, the market is focusing more on re-openings, rather than the latest COVID-19 wave from the world’s third-largest oil consumer, India,” said Warren Patterson, head of commodities strategy at ING, in a note titled, “Reopening Euphoria.”
“Part of the reason for this is the fact that the Indian government appears reluctant to impose a national lockdown, despite calls for one. However, if we were to eventually see a national lockdown imposed, this would likely hit sentiment,” he said.
Several U.S. states have scrapped or plan to ease lockdown restrictions in coming weeks as COVID infection rates decline. Improved vaccine rollouts and easing restrictions on travel have also contributed to optimism over European fuel demand.
India’s hospitals remain overwhelmed by cases and lacking in supplies including oxygen.
Meanwhile, the data from the EIA Wednesday also showed crude stocks at the Cushing, Okla., storage hub rose by 200,000 barrels for the week.
Gasoline supply inched higher by 700,000 barrels, while distillate stockpiles declined by 2.9 million barrels for the week, according to the EIA report. The S&P Global Platts survey had expected weekly supply declines of 500,000 barrels for gasoline and 1.6 million barrels for distillates.
Gasoline prices are likely to continue to rise, “creating an unwanted tax on the consumer in the days and weeks ahead,” Tariq Zahir, managing member at Tyche Capital Advisors, told MarketWatch.
“This could, as time goes on, start to see an impact on demand and with OPEC starting to add oil to the markets,” he said. “However in the short term, oil and several other commodities are strong and should continue to go higher.”
On Nymex Wednesday, June gasoline added 0.7% to $2.17 a gallon and June heating oil added 1.1% to $2.02 a gallon.
June natural gas declined by 1.1% to $2.94 per million British thermal units.