Strong Demand Drives Crude Oil Futures to New Heights
U.S. crude oil futures soared to fresh five-month peaks recently, propelled by a notable decline in U.S. gasoline inventories and robust fuel demand gearing up for the summer driving season ahead.
Current crude prices have also been buoyed by escalating concerns over potential conflicts in the Middle East, especially after Iran vowed retaliation following an Israeli strike in Syria resulting in the demise of a high-ranking general among others.
OPEC+ announced the extension of its output cuts through June as expected, with overproducing countries required to present compensation plans by the month’s end.
Front-month Nymex crude for May delivery closed up 0.3% at $85.43/bbl, while June Brent crude ended 0.5% higher at $89.35/bbl, marking the fourth consecutive daily increase and the highest settlement value for both benchmarks since October 27.
Various energy-related exchange-traded funds and stocks experienced significant gains, including Antero Midstream (AM), ConocoPhillips (COP), and Marathon Petroleum (MPC), to name a few.
Solid Gasoline Numbers and Promising Fundamentals
Analysts noted a 3.2 million-barrel rise in domestic crude stocks but highlighted a larger-than-expected 4.3 million-barrel drawdown in gasoline inventories. Jim Ritterbusch described this as a bullish development driven by strong demand reminiscent of the summer season, leading to major distributor stockpiling.
The Energy Information Administration’s evaluation of finished motor gasoline supplied – essentially, demand – revealed an increase of 521K bbl/day to 9.236M bbl/day. Mizuho’s Robert Yawger pointed out that this figure is not far from the all-time high of 10.043M bbl/day registered in July 2021.
Yawger remarked that the robust gasoline demand figures in the recent EIA report suggest the potential for further price increases in the coming weeks, spurred by demand fundamentals rather than geopolitical tensions – a promising turn of events for the market.
Strategic Petroleum Reserve Contracts and Pricing Strategy
The U.S. Department of Energy declared that it would not be awarding oil supply contracts for Louisiana’s Bayou Choctaw Strategic Petroleum Reserve site in August and September due to elevated oil prices. The Department aims to secure oil for the SPR at a price of $79/bbl or lower, significantly under the average of approximately $95/bbl received for emergency SPR sales in 2022.