Oil extends gain as US stockpiles tighten before driving season

Oil advanced for a second session after US crude and gasoline stockpiles shrunk further ahead of the summer driving season.

West Texas Intermediate futures climbed toward $111 a barrel after rising 0.5 per cent on Wednesday. Crude inventories at the storage hub at Cushing, Oklahoma, fell to the lowest level since March, while motor fuel supplies dropped for an eighth week, according to government data. The US gasoline market has tightened significantly, with stockpiles at the lowest seasonal level since 2014.

American retail gasoline prices have repeatedly broken records in the run-up to the driving season that starts this weekend. However, motor fuel demand is showing some signs of stress, tumbling on a rolling four-week basis, data released Wednesday by the Energy Information Administration (EIA) show.

“Supplies for both crude and fuels are tight, and demand – especially from the west – is robust, and that’s likely to push up prices for the next month or two,” said Will Sungchil Yun, senior commodities analyst at VI Investment Corp. “However, there are still concerns about a slowdown in the global economy.”

Crude has seen a tumultuous period of trading since the end of February after the Russia-Ukraine crisis upended trade flows and fanned inflation, while Covid-19 outbreaks in China have damped demand in the biggest importer. Oil markets are balanced but companies need to invest more in production to meet rising demand and prevent even higher volatility, according to Saudi Aramco.

Crude stockpiles at Cushing dropped by 1.06 million barrels last week to 24.78 million barrels, while nationwide inventories fell for a second week, the EIA said. Gasoline inventories dropped by 482,000 barrels. Gulf Coast refiners are running at the highest rate since January 2020.

Chinese Premier Li Keqiang said the nation’s economy is in some respects faring worse than in 2020 when the pandemic first emerged, urging efforts to reduce a soaring unemployment rate. Strict lockdowns to curb the spread of the virus have strained economic activity and sapped fuel demand.