Oil prices rose early on Thursday, extending this week’s gains, as demand looks strong with the U.S. driving season starting and Shanghai in China gradually reopening after two months of strict lockdowns.
As of 10:51 a.m. on Thursday, WTI Crude prices were up 3.17% at $113.69 and the international benchmark, Brent Crude, had risen by 2.41% on the day at $116.65.
Prices extended the small gains from previous sessions, including on Wednesday when oil rose after a supportive weekly inventory report from the Energy Information Administration (EIA). Commercial crude oil inventories fell by 1 million barrels in the week to May 20. At 419.8 million barrels, crude oil inventories are 14% below the five-year average for this time of the year. Total motor gasoline inventories decreased by 500,000 barrels last week and are about 8% below the five-year average for this time of year.
“Refinery utilization increased by 1.4 percentage points to 93.2%, the highest operating rate that we have seen from US refiners since late 2019,” ING strategists Warren Patterson and Wenyu Yao said on Thursday, adding:
“US gasoline stocks are likely to remain tight as demand picks up over the driving season.”
According to Patrick De Haan, head of petroleum analysis for fuel-savings app GasBuddy, we are likely to see “a 7 to 10% rise in gasoline demand today vs week ago as travelers start to hit the road for Memorial Day weekend. Under that would be soft, anything above 15% would be surprising.”
A tentative reopening in Shanghai, with a gradual resumption of in-person classes at schools in June, is also supportive of oil prices today.
On the supply side, OPEC+ is likely to rubberstamp next week its monthly production increase of 432,000 barrels per day (bpd) for July, six sources at OPEC+ told Reuters on Thursday. OPEC+ is estimated to be more than 2 million bpd below quota, and oil output in Russia is falling—instead of rising—due to the Western sanctions on Moscow over the invasion of Ukraine.
By Tsvetana Paraskova for Oilprice.com
More Top Reads From Oilprice.com:
- Middle East Producers Move To Cut Prices As Extreme Backwardation Eases
- Could Iraq Dethrone Saudi Arabia As Largest Oil Producer?
- Private Equity Is Back With A Bang In Oil & Gas
And whilst the gradual reopening of Shanghai is a bullish factor, the most bullish factor is the current tight market and the shrinking global spare production capacity including OPEC+ caused by a global underinvestment in the production expansion of oil and gas since 2019.
Moreover, the rhetoric by the EU about banning Russian oil imports is fanning the flames under oil prices.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London