Oil scores gain after big drop in U.S. gasoline, distillate inventories

Price action

• West Texas Intermediate crude for June delivery
  CL.1,
  +0.38%

  CL00,
  +0.38%

  CLM22,
  +0.38%
  rose 32 cents, or 0.3%, to close at $102.02 a barrel on the New York Mercantile Exchange after trading as low as $99.80.

• June Brent crude
  BRNM22,
  +0.03%
  rose 33 cents, or 0.3%, to $105.32 a barrel on ICE Futures Europe.

• May natural-gas futures
  NGK22,
  +3.34%
  jumped 6.1% to close at $7.2670 per million British thermal units.

• June gasoline
  RBM22,
  +2.84%
  ended 3.1% higher at $3.4135 a gallon, while June heating oil
  HOM22,
  +3.37%
  rose 3.3% to $3.9391 a gallon.

Market drivers

Worries over crude demand initially weighed on prices after Beijing moved to rapidly test residents for COVID amid fears of a lockdown in China’s capital, though the People’s Bank of China promised monetary-policy support for small businesses and industries hit hardest by COVID-19.

“China has already seen significant demand losses tied to efforts to limit the spread of COVID-19 in recent weeks, with the latest concerns coming as cases rise in Beijing. While China has announced a major increase in testing efforts for the capital city, it has not seen the scale of targeted lockdown measures that have more recently been observed in Shanghai,” said Robbie Fraser, manager of global research and analytics at Schneider Electric, in a note.

Meanwhile, state-controlled Russian giant Gazprom 
RU:GAZP
 said Tuesday that it had cut natural gas deliveries to Poland and Bulgaria as they refused to pay in Russian rubles, as demanded by President Vladimir Putin. Futures tracking Europe’s wholesale gas price reached a high of €119 per megawatt hour in early trading Wednesday, before paring back.

Read: ‘Energy is being increasingly weaponized.’ Analysts weigh up risks after Russia cuts gas to two EU countries

“A concern for the EU (European Union) market, as well as global gas markets is whether Russia will escalate further by cutting supplies to other European countries,” said Warren Patterson, head of commodities strategy at ING, in a note.

The “very real risk for even further escalation suggests that European gas prices will remain well supported,” he wrote. “This will have a spillover into other gas markets, particularly the Asian market. Europe will have to increasingly compete with Asia for flexible LNG (liquefied natural gas) supply, which will keep Asian spot LNG prices well supported.”

The euro
EURUSD,
-0.74%
and British pound
GBPUSD,
-0.21%
slumped versus the U.S. dollar, with the ICE U.S. Dollar Index
DXY,
+0.68%,
a measure of the currency against a basket of six major rivals, surging to levels last seen in February 2017. A stronger dollar is seen as a headwind for commodities priced in the unit, making them more expensive to users of other currencies.

Oil trimmed losses, however, eventually ending positive after the U.S. Energy Information Administration reported weekly inventory data.

U.S. crude inventories rose 700,000 barrels last week, the Energy Information Administration said. Analysts surveyed by The Wall Street Journal had forecast a rise of 600,000 barrels. But the American Petroleum Institute late Tuesday had reported a 4.78 million barrel rise, sources said.

The EIA said gasoline inventories fell by 1.6 million barrels last week, versus analyst expectations for a rise of 100,000 barrels, while distillate stocks fell 1.4 million barrels, compared to expectations for a drop of 100,000 barrels.

Crude exports “remain strong, with another solid SPR (Strategic Petroleum Reserve) release providing somewhat of an offset, keeping commercial inventories from dropping,” said Matt Smith, lead oil analyst for the Americas at Kpler. “Implied demand for gasoline drifted lower but inventories still drew, while distillate inventories continue to plunge to further multi-year lows.”