Oil Sinks Again As U.S. Refiners Pump All Out And China Promises Lockdown Easement

Meanwhile, U.S. drivers are spending twice on gas compared to last year: File Image/Pixabay

Oil prices on Wednesday fell in line with a broader market selloff that was triggered  in part by demand outlook being compromised by the severe Covid lockdowns in China.

Still, the market continued to show signs of extreme tightness as the U.S. Energy Information Administration reported that domestic stockpiles dropped 3.4 million barrels last week, and gasoline stockpiles fell 4.7 million barrels in advance of the busy summer driving season.

Plus, capacity use on both the U.S. East Coast and Gulf Coast is now above 95 percent, meaning refineries in these regions are close to their highest possible running rates; this caused John Kilduff, founding partner at Again Capital, to note that "They are racing to put more refined product on the market."

ING commodities strategists Warren Patterson and Wenyu Yao wrote on Wednesday, "What started out as a tight middle distillate market appears to be spreading into the gasoline market, at least for the U.S.; [gasoline inventories] are now below the low end of the five-year range."

Dennis Kissler, senior vice president of trading at BOK Financial, said, "The fundamentals remain bullish," but he added that "The market is extremely volatile so any little news or stock market sell off" can cause big price swings.

West Texas Intermediate on Wednesday settled down $2.81 to $109.59, while Brent fell $2.82 to $109.11 per barrel.

Chinese government officials said late that all 16 districts of Shanghai's financial hub had achieved zero Covid spread at the community level and were prepared to ease lockdown restrictions – but not fully until June 1, meaning more economic pain will continue.

Despite the persistent analytical worries over China, the tight market continues to cause havoc for consumers worldwide: in the U.S. Yardeni Research projects households are spending $5,000 annually on gasoline compared with $2,800 a year ago, and with inflation at 8 percent drivers won't feel relief any time soon.

Worse, JPMorgan analysts forecast a national gasoline price average of $6.20 per gallon in August.

Patrick DeHaan, head of petroleum analysis at GasBuddy, remarked, "We're definitely heading a little higher short-term, but we're still waiting to see if the European Union sanctions Russian oil……that could boost the momentum of getting close to $5."

While Hungary is regarded as the main stumbling block against the EU going ahead with its sanctions, it was reported on Wednesday that a German refinery on the Polish border has deep ties to Russia and its closure would risk jet fuel and diesel going dry in Berlin and much of eastern Germany.

The PCK refinery, built in the 1960s, is directly connected to a pipeline pumping Russian crude from the other side of the Ural mountains and controlled by Rosneft.