Oil Extends Losses As Inventory Build Spooks Traders, Despite Robust Demand

Meanwhile, U.S. drillers again express concern over low crude prices: File Image/Pixabay

The ephemeral issue of a build in U.S. crude inventory stocks took precedence over potentially more substantial signs of bullish demand for traders on Wednesday, causing a mild dip in oil prices.

According to the Energy Information Administration, U.S. gasoline stocks rose by 3.4 million barrels last week, compared with expectations for a 1 million barrel draw; distillate stockpiles, rose by 4.2 million barrels, however, crude inventories fell by 3.8 million barrels over the same time frame.

As a result, Brent settled down 19 cents at $68.52 per barrel, while West Texas Intermediate settled down 14 cents at $66.38.

Andrew Lipow, president of Lipow Oil Associates, said, "I think investors are disappointed to see gasoline demand fall just after July 4 as we are now in the peak summer driving season."

Yet, demand seems robust, at the least in the short term, a sentiment shared by Bloomberg, which also offered a different view of the EIA numbers: "U.S. benchmark crude's current contract was trading at a $1.22 premium to the next month, a bullish structure….overall, crude inventories fell 3.8 million barrels in this week's data and U.S. distillate stockpiles, which include diesel, remained at the lowest since 1996 seasonally."

Morgan Stanley analysts shared the cautiously bullish sentiment, noting, "The Brent futures curve remains firmly in backwardation across the first four-to-six months — a structure that usually points to market tightness," and they added that inventory increases were of an uneven distribution: "The builds have been in the Pacific, but Brent is priced in the Atlantic."

Still, oil prices hovering near the mid $60s means trouble for U.S. shale drillers: Dwight Scott, executive vice chairman at Quantum Capital Group, told media on Wednesday, "In the mid-$60s, you get dangerously close to where oil prices don't really drive appropriate returns for new drilling."

However, Scott conceded that U.S. president Donald Trump's tariffs (which have already enabled the U.S. to post a budget surplus of about $27 billion for June) and the corresponding uncertainty have jump-started activity regardless.

In other oil news on Wednesday, some India refiners are reportedly shifting interest to Murban or WTI crude imports as imports from Russia rose just 1 percent in the first half of 2025, with the discount on Urals crude narrowing to just $1.70-$2 per barrel below Brent.

That, combined with Trump's threat to sanction buyers of Russian oil unless a peace deal is struck with Ukraine within 50 days, prompted Julianne Geiger, a researcher at Oilprice.com, to remark, "the easy ride on Russian discounts may be ending."