US oil futures up slightly after API reports surprise slump in crude stocks

U.S. crude oil futures edged higher after the American Petroleum Institute (API) reported a surprise 4.2 million barrel decline in weekly domestic crude stockpiles for the week ended May 23, contrasting with expectations of a 1 million barrel increase. Gasoline stockpiles also decreased by 528,000 barrels, while distillate inventories rose by 1.3 million barrels, ahead of the official government inventory report due Thursday; the market anticipates increased fuel demand with the start of the U.S. summer driving season.

Analysis

U.S. West Texas Intermediate (WTI) crude oil futures saw a slight increase, trading at $61.88 a barrel after an earlier settlement at $61.84, in response to an American Petroleum Institute (API) report revealing an unexpected decline in domestic crude stockpiles. For the week ended May 23, U.S. crude inventories decreased by approximately 4.2 million barrels, a significant deviation from market expectations of a 1 million barrel increase and a reversal from the 2.5 million barrel build reported by the API in the preceding week. This drawdown suggests potentially stronger demand or tighter supply conditions, coinciding with expectations of a boost in fuel consumption from the commencement of the U.S. summer driving season. Supporting this, gasoline stockpiles also fell by 528,000 barrels, although distillate inventories, which include diesel and heating oil, rose by 1.3 million barrels. The market's attention is now focused on the official government inventory report due Thursday, which will be critical for corroborating these figures and influencing near-term price movements.

Key Decisions for Investors

• Consider the API's reported crude drawdown as a near-term bullish indicator, though confirmation from the official Energy Information Administration (EIA) report on Thursday is crucial before making significant positioning changes.
• Monitor movements in gasoline inventories in conjunction with crude oil data, as sustained decreases would further validate expectations of robust demand during the summer driving season.
• Be prepared for potential price volatility around the release of the EIA's official inventory data, as discrepancies with the API figures often trigger market reactions.