Crude Rebounds as Supply Slips While Refiners Use Record Volume

  • U.S. crude supply fell by 3.64 million barrels last week: EIA
  • Refineries increased crude processing for a sixth week

Oil Resumes Slide on U.S. Stockpiles

Oil closed higher in New York after a government report showed U.S. crude stockpiles fell for a third week as refinery demand surged.

Crude stockpiles fell 3.64 million barrels to 528.7 million last week, the Energy Information Administration reported Wednesday -- more than twice the 1.75 million barrel decline forecast by analysts surveyed by Bloomberg. Refineries processed a record amount of crude as they anticipate rising gasoline demand. Crude production and imports climbed as fuel stockpiles surged.

"This report is what we’ve been waiting for," said Matt Sallee, who helps manage $17.2 billion in oil-related assets at Tortoise Capital Advisors in Leawood, Kansas. "The big draw was especially impressive with imports up as much as they are. Refiners have been making upgrades and are now chewing up more oil than ever before."

Oil’s rally faltered last week amid concern rising U.S. output will offset efforts by the Organization of Petroleum Exporting Countries and its allies to trim a global glut. While OPEC mulls extending its six-month deal past June, American drillers continue to add rigs to shale fields. There’s a high probability that OPEC will agree to prolong the cuts, Jeff Currie, head of commodities research at Goldman Sachs Group Inc., said in an interview on Bloomberg TV.

West Texas Intermediate for June delivery rose 6 cents to $49.62 a barrel on the New York Mercantile Exchange. Futures dropped as much as 1.3 percent to $48.94 before release of the EIA report. Total volume traded was about 4 percent below the 100-day average.

Brent for June settlement slipped 28 cents, or 0.5 percent, to $51.82 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude closed at a $2.20 premium to WTI.

Jeff Currie of Goldman Sachs discusses the ‘scorecard’ for oil on “Bloomberg Daybreak: Americas.”

(Source: Bloomberg)

Refineries processed 17.3 million barrels of crude a day last week as they utilized 94.1 percent of their capacity, the most since November 2015, according to the agency. U.S. refiners typically boost crude processing at this time of year as they prepare for the summer surge in gasoline demand.

See also: U.S. refiners running wild risks massive margin hangover

"Refiners are gearing up for summer gasoline demand," Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $3.4 billion, said by phone. "The utilization number is very impressive, especially since they were only operating at 88.1 percent of capacity a year ago."

Recent Record

U.S. crude supplies slipped from a record 535.5 million reached at the end of March. Stockpiles at Cushing, Oklahoma, the biggest U.S. storage hub and the delivery point for WTI, fell 1.2 million barrels.

"Crude inventories should continue to grind lower," Craig Bethune, a fund manager at Manulife Asset Management Ltd. in Toronto who focuses on energy and natural resources investments, said by telephone.

Crude production rose to 9.27 million barrels a day, the highest since August 2015. Imports surged to 8.91 million barrels a day, the most since the week ended Feb. 3. 

Supplies of gasoline climbed 3.37 million barrels, the biggest gain since January. Inventories of distillate fuel, a category that includes diesel and heating oil, surged 2.65 million barrels, the first increase in 11 weeks.

Shrinking Margin

Gasoline futures for May delivery dropped 2 percent to $1.5903 a gallon, the lowest since March 23. The gasoline crack spread, a rough measure of the profit from refining crude into the fuel, dropped as much as 7.8 percent to $17.269 a barrel, the lowest since March 7.

"At some point, we’ll have to see gasoline demand pick up," O’Grady said. "The market’s been betting on strong gasoline demand."

The energy ministers of OPEC members Saudi Arabia and Venezuela plan to meet their Russian counterpart to discuss extending oil-output cuts. Saudi Minister of Energy and Industry Khalid Al-Falih said that he will talk with Russia’s Alexander Novak by phone this week and meet him within the next two weeks. Venezuela’s Oil Minister Nelson Martinez was also planning to visit Moscow, said a person familiar with the matter.

"OPEC hasn’t achieved their aim," Bethune said. "They wanted to see U.S. inventories return to normal levels and they’re nowhere close. They have more work to do."

Oil-market news:

  • Exxon Mobil Corp. raised its quarterly dividend less than expected amid concern about stalling oil prices and a global glut of excess crude.
  • Saudi Arabia, the world’s biggest crude exporter, is losing market share to Iraq and Iran as a result of OPEC’s output deal, according to the head of research at Abu Dhabi Investment Authority.
  • Hess Corp. jumped the most in five months as the oil explorer’s conservative approach showed signs of paying off in the form of unexpectedly strong crude production and lower costs.
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