Crude Prices Settle Lower as EIA Crude Inventories Rise to a 10-Month High

July WTI crude oil (CLN25) Wednesday closed down -0.46 (-0.74%) and July RBOB gasoline (RBN25) closed up +0.0003 (+0.01%).

Crude oil prices on Wednesday fell from a 1-month high and turned lower after weekly EIA crude inventories unexpectedly rose to a 10-month high.  Crude prices Wednesday initially spiked higher on escalating geopolitical risks in the Middle East after CNN reported that new US intelligence suggests Israel is preparing for a potential strike on Iranian nuclear facilities.  Also, Wednesday’s slide in the dollar index (DXY00) to a 2-week low supported energy prices.

Weakness in the crude crack spread is bearish for oil prices.  Wednesday’s crack spread fell to a 2-week low, discouraging refiners from purchasing crude oil and refining it into gasoline and distillates.

Doubts about a nuclear deal between Iran and the US supported crude oil prices.  Iranian Supreme Leader Ali Khamenei said Tuesday that he doesn’t think negotiations with the US will succeed, and he urged the Trump administration to stop “talking nonsense.”  President Trump recently said Iran will face “something bad” if it doesn’t quickly accept a US proposal over its nuclear program.

Crude has support on the outlook for smaller global oil supplies after the US State Department recently slapped sanctions on an international network that facilitated the shipment of millions of barrels of Iranian oil to China.  The State Department sanctioned the alleged Iranian front company called Sepehr Energy Jahan Nama Pars for using revenue from the sales of crude to fund the development of weapons, including ballistic missiles and drones, nuclear proliferation, and Iran’s “terrorist proxies.”

The prospects for improved US gasoline demand are supportive of crude prices.  According to the American Automobile Association, it projects that 39.4 million Americans will travel by car this Memorial Day weekend, up +3.1% from last year because US gasoline costs are 50 cents a gallon cheaper than last year.

Concern about a global oil glut is negative for crude prices after OPEC+ on May 3 agreed to raise its crude production level by 411,000 bpd in June.  In a move that could further pressure crude prices, Saudi Arabia signaled that additional similar-sized increases in crude output could follow, which is viewed as a strategy to reduce oil prices and punish overproducing OPEC+ members, such as Kazakhstan and Iraq.  OPEC+ is boosting output to reverse the 2-year-long production cut, gradually restoring a total of 2.2 million bpd of production.  OPEC+ had previously planned to restore production between January and late 2025, but now that production cut won’t be fully restored until September 2026.  OPEC Apr crude production fell -200,000 bpd to 27.24 million bpd.

An increase in crude oil held worldwide on tankers is bearish for oil prices.  Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least seven days rose by +3.1% w/w to 90.97 million bbl in the week ended May 16.

In a supportive factor for crude oil prices, the US on January 10 imposed new sanctions on Russia’s oil industry that could curb global oil supplies.  Russian oil product exports in March rose to a 5-month high of 3.45 million bpd, according to data compiled by Bloomberg from analytics firm Vortexa.  Weekly vessel-tracking data from Bloomberg showed Russian crude exports fell by -90,000 bpd w/w to 3.4 million bpd in the week to May 18.

Wednesday’s weekly EIA report was mostly bearish for crude oil and products.  EIA crude inventories unexpectedly rose +1.33 million bbl to a 10-month high versus expectations of a -1.1 million draw.  Also, EIA gasoline supplies unexpectedly rose +816,000 bbl versus expectations of a -2.0 million bbl draw.  In addition, EIA distillate stockpiles unexpectedly rose +579,000 bbl versus expectations of a -1.4 million bbl.  On the positive side, crude supplies at Cushing, the delivery point of WTI futures, fell by -457,000 bbl.  

Wednesday’s EIA report showed that (1) US crude oil inventories as of May 16 were -5.6% below the seasonal 5-year average, (2) gasoline inventories were -2.2% below the seasonal 5-year average, and (3) distillate inventories were -16.1% below the 5-year seasonal average.  US crude oil production in the week ending May 16 was unchanged w/w at 13.392 million bpd, modestly below the record high of 13.631 million bpd from the week of December 6.

Baker Hughes reported last Friday that active US oil rigs in the week ending May 16 fell -1 to 473 rigs, just above the 3-1/4 year low of 472 rigs posted on January 24.  The number of US oil rigs has fallen over the past two years from the 5-year high of 627 rigs posted in December 2022

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