Oil Holds Near Three-Month High as US Stockpiles Tighten Further

(Bloomberg) -- Oil held gains near the highest close in three months after crude stockpiles shrunk at a key US storage hub and gasoline inventories fell for a 10th week, exacerbating market tightness.

West Texas Intermediate futures traded above $122 a barrel after settling 2.3% higher on Wednesday. Crude supplies at the Cushing hub sunk to the least since early March, while gasoline inventories are at the lowest seasonal level in eight years, according to Energy Information Administration data.

The four-week average for motor fuel demand rose to 9 million barrels a day for the first time this year following the Memorial Day weekend, the traditional start of the US summer driving season. Consumption is rising even as the retail price for gasoline -- already at a record -- approaches $5 a gallon.

“Gasoline inventories are more in line with levels that we usually see at the end of the driving season and obviously we still have the whole summer ahead of us,” said Warren Patterson, the head of commodities strategy at ING Groep NV. “We expect that the refined products market will see even further tightening over the coming months, which will be bullish for crude prices.”

Crude has maintained its upward momentum this year as economies rebounded from the pandemic, with Russia’s invasion of Ukraine upending trade flows and leading to further tightening. Prices are “nowhere near” their peak and China’s recovery from virus outbreaks threatens to strain the market, according to the United Arab Emirates, a major OPEC producer.

China is cautiously emerging from strict virus curbs, although Shanghai will lock down a district on Saturday for mass testing, highlighting the uncertain outlook. China National Petroleum Corp., the country’s biggest oil and gas producer, predicted oil demand growth next quarter but warned of possible further disruptions this year due to more outbreaks.

Goldman Sachs Group Inc. said this week that prices needed to rally further to achieve the demand destruction required for market rebalancing. The bank increased its quarterly forecasts for this year and into 2023, raising its WTI estimate for the next quarter to $137 a barrel.

US gasoline stockpiles dropped by 812,000 barrels to 218.18 million barrels last week, according to the EIA. The 10 weeks of declines is the longest run since 2019. Nationwide crude inventories rose by 2.03 million barrels.

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