Oil prices rise as EIA reports a nearly 10 million-barrel weekly drop in U.S. crude supplies

Last Updated: June 28, 2023 at 11:14 a.m. ETFirst Published: June 28, 2023 at 7:49 a.m. ET

By Myra P. Saefong William Watts

U.S. crude stocks dropped last week, but product inventories climb, according to the Energy Information Administration.

Oil futures headed higher on Wednesday after official data show that U.S. crude inventories fell by almost 10 million barrels last week, but domestic supplies of gasoline and distillates unexpectedly rose.

Prices had posted a decline on Tuesday, giving back a modest rise that followed a short-lived weekend rebellion in Russia by the Wagner Group mercenary force that raised questions about President Vladimir Putin’s grip on power.

Supply data

The Energy Information Administration on Wednesday reported that U.S. commercial crude inventories fell by 9.6 million barrels for the week ended June 23.

On average, analysts polled by S&P Global Commodity Insights expected a 4.8 million-barrel decline. The American Petroleum Institute late Tuesday reported a 2.4 million barrel drop in last week’s U.S. crude inventories, according to a source citing the data.

The crude supply draw was “primarily a reflection of strengthening exports and comes despite U.S. refining activity continuing to turn lower counter-seasonally,” said Troy Vincent, senior market analyst at DTN.

The EIA report showed weekly inventory gains of 600,000 barrels for gasoline and 100,000 barrels for distillates. Analysts had forecast weekly decreases of 1 million barrels for gasoline and 900,000 barrels for distillates.

Crude stocks at the Cushing, Okla., Nymex delivery hub edged up by 1.2 million barrels for the week, the EIA said, while stocks in the Strategic Petroleum Reserve fell by 1.4 million barrels.

A widening Brent-WTI price spread over the past six weeks is beginning to “translate into resurgent U.S. crude exports,” said DTN’s Vincent. U.S. crude exports are beginning to “trend higher once more after sliding lower over the past few months.”

Vincent said “it’s clear that there is growing global appetite for U.S. sour [oil] barrels following the Saudis announcing supply cuts and lifting OSPs [official selling prices] to a point that they’re largely pricing themselves out of the market.”

Other market drivers

Overall for oil, “it’s a bull-bear battle in a very small ring,” Phil Flynn, senior market analyst at The Price Futures Group told MarketWatch on Wednesday. It’s a “recession versus a supply squeeze.”

Traders are “trying to decide whether we are going into a recession based on price structure that suggests over supply, versus the possibility it is predicting supply tightness later this year,” he said, adding that the market has been very “sensitive to comments by central bank leaders.”

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On the supply side, the U.S. SPR has just one more release to go, and Saudi Arabia’s voluntary oil production cut goes into effect July 1, said Flynn. Also, there’s “talk that the Saudis are considering making the 1 million barrel a day cut permanent. That could lead to early July fireworks!”

Oil prices had finished a bit higher Monday as investors largely took in stride the brief mutiny that saw Wagner Group forces advance to within around 120 miles of Moscow before being called off by the group’s leader, Yevgeny Prigozhin on Saturday.

Crude fell back Tuesday, with oil unable to shake worries over the economic outlook. European central banks last week delivered a series of interest rate increases that stoked recession fears for the region.

With the eurozone, Great Britain and China “barely growing,” the demand outlook will continue to depress spot prices in the near term, said Peter Cardillo, chief market economist at Spartan Capital, in a note.

“We think spot [WTI] prices are now able to retest the $68 level, and if breached to the downside, $65 dollar oil should be expected,” he wrote.