WTI edges higher on tight supply, rising US refining activity

Crude oil price slightly rose on Wednesday, buoyed by tight supplies and as US refiners drove refining activity to their highest level since before the coronavirus pandemic started. Brent crude futures for July rose by 9 cents to $113.65 a barrel. US West Texas Intermediate (WTI) crude for July delivery rose 17 cents to $109.94 a barrel amid lack of catalysts, where it has spent the last three days. Rising fuel demand in the US as peak driving season approaches is being cited as supportive.


Refiners are going to continue to burn the crude as much as they can. The market should be concerned going into this holiday weekend because gasoline supplies are still very tight. Refiners have had to keep facilities running at full-tilt to deal with heavy demand, especially from overseas, as refined product exports rose to more than 6.2 million barrels per day last week. High exports and a reduction in refining capacity means gasoline stocks have dwindled in the United States.

US crude stockpiles fell 1 million barrels last week, the government said, with gasoline inventories also sliding modestly. Distillate stocks rose by 1.7 million barrels. Refiners picked up the pace of processing, boosting capacity use to 93.2%, its highest since December 2019.

When looking at the utilization figures, the total refining capacity has dropped over the past two years by about one million barrels per day. This upcoming weekend’s US Memorial Day travel is expected to be the busiest in two years, causing fuel demand to rise as more drivers hit the road and shake off coronavirus pandemic restrictions despite high fuel prices.

Global crude supplies continue to tighten as buyers avoid oil from Russia, the world’s second-largest exporter, after the invasion of Ukraine, which Moscow calls a special military operation. The EU hopes to be able to agree on sanctions that would phase out Russian oil imports before the next meeting of the European Council, the council’s president, Charles Michel, said on Wednesday.

Even without a legal ban, self-sanctioning by numerous European companies has led to a record amount of Russia’s Urals crude oil sitting in vessels at sea as it struggles to find buyers. On the flip side is the strict approach to the COVID-19 pandemic from China, the world’s biggest oil importer. Beijing has imposed new curbs while Shanghai plans to keep most restrictions in place this month.

WTI is going sideways near the $110 level

Focus is on the latest weekly US crude oil inventory report at 1430GMT for further insight into current US demand.

Amid a subdued tone to macro trading conditions with markets in wait and see mode ahead of commentary from Fed Vice Chair Lael Brainard and the release of the minutes of this month’s Fed meeting, and amid a lack of any notable fundamental catalysts to spur volatility, oil prices are going sideways. Front-month WTI futures were last trading just to the north of $110, having spent the last three sessions pivoting either side of this level. That leaves prices around the midpoint of recent $105-$110 ranges.

Market commentators continue to cite expectations for rising fuel demand in key markets (like the US) as peak driving season approaches as supportive of prices. Weekly US inventory data coming up at 1430GMT is expected to show another approximately 640K barrel drop in gasoline inventories following last week’s 4.8M barrel drop. That would mean that gasoline inventories have only in one week out of the 16 weeks since early February.

Just ahead of the summer driving season, US gasoline stocks find themselves at their seasonally lowest level since 2014. That drop in US gasoline inventories goes hand in hand with the recent sharp rise in US gasoline prices and reflects increasingly tight global market conditions as OPEC nations lift output only very slowly, and as Russian oil production struggles in the face of tough sanctions on Russia after the invasion of Ukraine.

Sanctions on Russia look set to tighten in the weeks ahead. The EU hopes to agree on a plan to embargo Russian oil imports over the course of the next few months ahead of next week’s EU Council Summit meeting, EU Council President Charles Michel said on Wednesday. The US has already banned all Russian imports, while the UK will end imports by the end of the year. As a result, many global oil buyers have been self-sanctioning out of fear that new sanctions may come.

Russian oil stored in vessels at seas has hit a record high as the nation struggles to find buyers. Russian oil output is expected to have dropped by as much as 3M barrels per day as of this month versus the country’s pre-invasion of Ukraine levels.