Another U.S. Stock Draw Causes Oil Price Boost, But Numbers Are Deceiving

Meanwhile, Aramco's chief reiterates that the global market is balanced: File Image/Pixabay

Oil eked out modest price gains on Wednesday on the strength of crude stocks falling in the U.S. – although hints of demand destruction limited gains.

After it was reported that crude inventories fell by 1 million barrels last week both nationally and at the storage hub in Cushing, Oklahoma, West Texas Intermediate settled up 56 cents at $110.33 per barrel, and Brent settled up 47 cents to $114.03 per barrel.

However, government data revealed that unseasonably high gasoline exports eroded domestic stockpiles ahead of the summer driving season, and that motorists may have begun to balk at record gas prices because refineries have accelerated output and fuel inventories fell at a slower pace than previous weeks.

Still, Ed Moya, senior market analyst at Oanda, remarked,  "The oil market remains tight and crude prices seem like they will continue to be supported."

Given that this upcoming weekend's U.S. Memorial Day travel is expected to be the busiest in two years, Phil Flynn, senior market analyst at Price Futures Group Inc., said, "Refiners are going to continue to burn the crude as much as they can, [but] the market should be concerned going into this holiday weekend because gasoline supplies are still very tight."

One of the more curious aspects of the energy market this week are the mixed signals about the health of inventories globally, with plenty of signs that supplies are excruciatingly tight countered by  Saudi Arabia stating in the previous session that the market is balanced.

That argument was reiterated on Wednesday by Amin Hassan Nasser, CEO of Saudi Aramco, who told media that "The market is balanced to date" but with regards to spare capacity "that is an issue" and pegged it as 2 percent; he added that given the strong post-pandemic pickup, the capacity should be greatly expanded "to mitigate any interruptions that might happen."

Meanwhile, although the European Union has failed so far to impose a ban on oil imports from Russia, Bloomberg on Wednesday noted that "Cargoes shipped from Primorsk and Ust-Luga, Russia's two main Baltic Sea oil ports, are being forced to take much longer voyages to refineries in Asia and to just a handful of buyers in the Mediterranean."

The agency added that before the invasion of Ukraine, northwest Europe took more than 70 percent of all Urals crude cargoes, but flows have so far fallen since May 15 to just 20 percent.

And while pundits speculated earlier this week that the EU will ultimately abandon attempts to fully block Russia, Paolo Gentiloni, European Commissioner for Economic and Monetary Affairs, said the oil embargo could happen in "the coming days and week" and won't necessarily lead to a recession if caution is exercised.