Oil Jumps as U.S. Fuel Inventories Plunge Ahead of Driving Season
(Bloomberg) -- Oil rallied after slumping for two days, extending gains after a US government report showed fuel inventories plunging ahead of the summer driving season.
West Texas Intermediate futures rebounded more than $5 to trade around $105 a barrel. Covid infections in Shanghai and Beijing dropped on Tuesday, providing cautious optimism for improvement. In the US, the Energy Information Administration reported that distillate inventories fell to the lowest since May 2005, while gasoline supplies in New York Harbor dropped to the lowest since 2017.
US retail gasoline and diesel prices rose to a record just ahead of the nation’s summer driving season. Demand for both products fell domestically last week but inventories are shrinking with US refiners sending more product abroad to replace Russian supplies.
Many refiners were forced to shut operations during the pandemic when fuel demand evaporated. With so much less fuelmaking capacity both in the US and across the globe it’s going to be difficult to meet refined product demand, said Quinn Kiley, a portfolio manager at Tortoise, a firm that manages roughly $8 billion in energy-related assets. “This could lead to crude oil coming down and prices at the pump going up.”
No Relief at Pump as US Fuel Prices Keep Climbing Higher: Chart
The oil market has been whipsawed over the last couple of months by Covid-19 restrictions across China and Russia’s invasion of Ukraine. The war has fanned inflation, driving up the cost of everything from food to fuels. In the US, consumer prices rose more than expected, indicating inflation will persist at elevated levels for longer.
Oil is experiencing one of its most tumultuous trading periods ever as the war in Ukraine and the ensuing sanctions against Russia push volatility to historic levels. The oil market hasn’t been “consistent at all as of late,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Management. “Trading crude right now is like trying to figure out the mood swings of a teenager.”
Traders continue to monitor the EU’s efforts to reach an agreement on Russian sanctions on oil imports. On Wednesday, Hungary said it will only agree if shipments via pipelines are excluded.
Shanghai reported a 51% drop in new coronavirus infections on Tuesday, with zero cases found in the community -- a key metric for the city to end a punishing lockdown that’s snarled global supply chains and left tens of millions of people stuck inside their homes for about six weeks.
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