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Crude oil futures recovered from early losses and closed higher on Wednesday after US government data showed a weekly drop in domestic crude oil inventories.
The 1.4 million barrel drop in stocks, accompanied by an increase in refinery usage, followed the previous week's massive 7.3 million barrel increase; in The bearish side was a 1.9 million barrel increase in inventories at the Cushing, Oklahoma delivery hub.
“Increased refining activity and exports have encouraged a smaller reduction in crude oil inventories, helping to undo some of last week's big construction“Kpler analyst Matt Smith said, according to Reuters.
The geopolitical risk premium, for its part, has “lots of room down whether the Israelis and Hamas can reach a ceasefire agreement in the coming days,” said Mizuho analyst Robert Yawger.
First month Nymex (CL1:COM) crude oil for June delivery closed +0.8% to $78.99/bbl, its best close in a week, while front-month July Brent crude (CO1:COM) ended +0.5% at $83.58/barrel.
ETF: (NYSEARCA:USE), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (NRGU), (USOI), (UGA)
Meanwhile, U.S. demand for gasoline and diesel is at an all-time high. weakest seasonal level since the pandemicaccording to new data from the Energy Information Administration, with four-week average gasoline demand at 8.63 million bbl/day (bpd) in the week ending May 3, the lowest reading for early May since 2020.
Four-week average demand for distillate fuels, which includes diesel and heating oil, was 3.6 million barrels a day, also the weakest seasonal level since the pandemic.
“Everyone was going to look at the gasoline situation and it was definitely a disappointment,” Yawger said, according to Reuters. “If that's indicative of the performance of the economy, it's bad all the way around.”
Falling demand is weighing on refining margins, with the US 3-2-1 spread trading below $26.50/barrel on Wednesday for the first time since February, Reuters reported.
Gasoline stocks rose by 915,000 barrels to 228 million barrels and distillate fuel oil stocks rose by 560,000 barrels to 116.4 million barrels last week, the highest seasonal level in three years for both.
