Crude Oil Inventories Draw Down, But Oil Products Continue Worrisome Build

U.S. crude oil inventories decreased by 3.6 million barrels for the week ending June 6, according to the EIA, while gasoline inventories rose by 1.5 million barrels and distillate stocks increased by 1.2 million barrels. The crude draw contributed to a rise in Brent and WTI prices, up 1.76% and 2.14% respectively, driven by positive trade talk signals in addition to the inventory data. Despite the crude draw, distillate inventories remain 17% below the five-year average, and distillate products supplied are down 5.9% compared to last year.

Analysis

U.S. crude oil inventories experienced a notable decrease of 3.6 million barrels for the week ending June 6, as reported by the Energy Information Administration (EIA), a significantly larger draw than the 370,000-barrel drop indicated by the American Petroleum Institute (API). This reduction in crude stocks, coupled with positive sentiment surrounding U.S.-China trade discussions, contributed to an uptick in oil prices, with Brent crude rising $1.18 per barrel (1.76%) to $68.05 and WTI increasing $1.39 per barrel (2.14%) to $66.37. However, the report also revealed builds in refined products: gasoline inventories rose by 1.5 million barrels, with daily production increasing to 9.7 million barrels, while distillate inventories increased by 1.2 million barrels despite a slight decrease in daily production to 4.9 million barrels. Distillate inventories remain significantly constrained, currently 17% below the five-year average for this period. While total products supplied over the last four weeks saw a modest year-over-year increase of 0.5% to 19.9 million barrels per day, demand indicators for specific products showed weakness, with distillate products supplied down 5.9% and gasoline products supplied down 2.5% compared to the same period last year.

Key Decisions for Investors

• Investors should note the bullish signal from the substantial crude inventory draw and its immediate positive impact on crude prices, while also considering the counteracting bearish pressure from rising gasoline and distillate inventories.
• The persistent deficit in distillate inventories, now 17% below the five-year average despite recent builds, warrants close monitoring as it could lead to price volatility or support for distillate crack spreads, especially if demand patterns shift.
• The observed decline in year-over-year supplied volumes for both gasoline and distillates suggests potential underlying demand weakness, which could temper upward price momentum for crude and refined products if this trend continues.