Oil Prices Decline On Blip In U.S. Gasoline Demand, But Commodity Is "Still Solid"

Meanwhile, overheated market may be overestimated, says Saudi minister: File Image/Pixabay

Oil's winning streak hit a minor road bump on Thursday when it was learned that a sharp drop in U.S. crude inventories was offset by a surprising rise in fuel inventories - resulting in minor price losses for both benchmarks.

According to the Energy Information Administration, U.S. crude inventories dropped by 5.1 million barrels last week, compared with expectations for a decrease of 2.4 million barrels, while gasoline stocks grew by 1.5 million barrels.

The reason for the rise was attributed to panic buying following the closure of the Colonial Pipeline last month, which meant drivers were less likely to need to fill up their tanks over Memorial Day weekend - and as such, Phil Flynn, senior market analyst at Price Futures Group Inc., downplayed the significance of the drop by stating, "Gasoline demand was off week-over-week which may disappoint some people, but it's still solid."

Accordingly, Brent on Thursday settled down a mere 4 cents at $71.31 per barrel, and West Texas Intermediate settled down 2 cents at $68.81 per barrel.

While oil for the past week has been bolstered by extremely strong demand recovery in many parts of the world and expectations that the recovery will continue as the pandemic peters out, Abdulaziz bin Salman, energy minister for Saudi Arabia, on Thursday dismissed talk that the global market would become overheated.

He said, "There will always be a good amount of supply to meet demand, but we'll have to see demand before you see supply."

Still, Alexander Dyukov, CEO of Gazprom Neft, said he expected the Organization of Petroleum Exporting Countries (OPEC) and its allies to raise output further this year as the market heats up, perhaps as soon as its July meeting.

Dyukov noted that "It's important not to allow the market to overheat; an oil price in a range of $65 to $70 a barrel isn't stable in the long term."

On the political front, U.S. president Joe Biden's economic sanctions against Russia prompted Alexander Novak, deputy vice president of the former Soviet Union, to state on Thursday that his nation may soon move away from U.S. dollar-denominated crude contracts.

Novak remarked, "Ideally we would prefer not to move away from the dollar as it is an international currency used for settlements, but if our American partners create this type of situation we shall have no other choice but gradually do that."

He added, "We shall continue to be the world leader in the fossil fuels market and we shall diversify by going into the LNG and petrochemicals (markets)."