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Futures Movers: Oil ends at 3-month high as gasoline demand continues to rise in face of record pump prices

The U.S. oil benchmark pushed solidly above the $120-a-barrel threshold to end at a three-month high Wednesday as data showed demand for gasoline has yet to cool off even as pump prices hit records.

Price action
  • West Texas Intermediate crude for July delivery CL00, +0.04% CL.1, +0.04% CLN22, +0.04% rose $2.70, or 2.3%, to close at $122.11 a barrel on the New York Mercantile Exchange, the highest finish for a front-month contract since March 8.
  • August Brent crude BRN00, +0.12% BRNQ22, +0.12% advanced $3.01, or 2.5%, to settle at $123.58 a barrel on ICE Futures Europe, also its highest since March 8.
  • Back on Nymex, July gasoline RBN22, -0.43% gained 1.5% to end at $4.2219 a gallon, just 0.7% away from its all-time high finish set on June 3. July heating oil HON22, -0.34% shed 0.2% to $4.3143 a gallon.
  • July natural gas NGN22, -5.45% slid 6.4% to close at $8.699 per million British thermal units, after ending Monday at a nearly 14-year high, with the weakness attributed to a fire at a Texas liquefied natural-gas export terminal.
Market drivers

The Energy Information Administration on Wednesday said U.S. crude inventories fell 2 million barrels in the week ended June 3, while gasoline stocks fell 800,000 barrels and distillate inventories rose 2.6 million barrels. Analysts surveyed by S&P Global Commodity Insights had looked for crude inventories to fall by 2.9 million barrels, while gasoline stocks were seen up 2 million barrels and distillate stocks up by 800,000 barrels.

“A jump higher in refining activity and strong East Coast imports could not avert a draw to gasoline inventories as implied demand jumped to the highest weekly level this year,” said Matt Smith, lead oil analyst, Americas, at Kpler.

That demand comes with gasoline prices hitting records at the pump and trading near all-time highs in the futures market.

Gasoline inventories on the East Coast saw a much-needed build, Smith said, as imports came in above 1 million barrels a day for the first time since the peak of summer driving season last July. Distillate inventories, meanwhile, rose amid higher refinery runs and lower implied demand.

The American Petroleum Institute, an industry trade group, late Tuesday had reported a 1.85 million barrel rise in crude stocks, a 1.82 million barrel increase in gasoline stocks, and a 3.38 million barrel jump in distillates, according to a source.

The crack spread — the difference between the price of a barrel of oil and the products that can be refined from it — narrowed on Tuesday, possibly reflecting the API data, noted Carsten Fritsch, commodity analyst at Commerzbank, but remains near record levels.

He noted that the so-called 3-2-1 crack spread, which indicates how much revenue is generated for U.S. refineries converting 3 barrels of WTI into 2 barrels of gasoline and 1 barrel of diesel, was at $56.50 a barrel after hitting a record $62.50 at the beginning of this week.

Jeremy Weir, chief executive of Trafigura, one of the world’s largest commodity-trading houses, warned at a Financial Times event Tuesday that crude prices were likely to hit $150 a barrel and could go “parabolic,” posing a threat to the global economic outlook.

Oil was also finding support from the potential for a strike by Norwegian offshore oil workers next week, Fritsch said, noting that Norway is the most important European oil and gas producer outside Russia.

A strike by 845 of Norway’s 7,500 offshore oil and gas workers beginning Sunday would have a limited effect on oil output, while natural-gas output would be unaffected in sensitivity to the situation in Europe as a result of the Russia-Ukraine war, labor unions said, according to Reuters.

Natural gas, which closed at a nearly 14-year high earlier this week, rose in early activity, but ended the day lower. Prices slid after news reports said a fire broke out at a Texas export facility operated by Freeport LNG, potentially crimping demand for natural gas for export.

In a statement, Freeport LNG said: “An incident occurred at the Freeport LNG facility on Quintana Island at about 11:40 am. There were no injuries, all employees and contractors have been accounted for and there is no risk to the surrounding community. The incident investigation will continue.”

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