Oil Slides as EIA Reports Crude Inventory Decline, Fuel Builds

• Crude oil inventories declined by an estimated 4.2 million barrels, while fuel inventories increased.
• Traders are cautious due to concerns about softer demand and uncertainty about supply sufficiency.
• OPEC+ is expected to extend its voluntary production cuts into the second half of the year, supporting prices.

Crude oil prices sunk following the Energy Information Administration’s report of an estimated inventory decline of 4.2 million barrels for the week to May 24, as fuel inventories rose.

The crude inventory figure compared with a modest increase of 1.8 million barrels for the previous week and American Petroleum Institute estimate for a 6.5-million-barrel inventory draw for the week to May 24 as reported on Wednesday.

Gasoline inventories added 2 million barrels during the last week before the start of summer driving season, with production averaging 10 million barrels daily.

The figures compared with a small inventory draw of 900,000 barrels for the week to May 17, when production averaged 10 million barrels daily.

In middle distillates, the authority estimated an inventory increase of 2.5 million barrels for the week to May 24, with production averaging 5 million barrels daily.

This compared with an inventory build of a modest 400,000 barrels for the previous week, and average daily production of 5.1 million barrels.

Oil prices, meanwhile, have fallen. Traders appear to be locked between expectations of softer demand and uncertainty about supply sufficiency.

The demand concern yesterday got support from lukewarm buyer interest in the latest placement of U.S. Treasuries. It was the third such unattractive placement in two days, suggesting oversupply and the resulting lower demand.

The supply expectations are related to the virtual certainty that OPEC+ will extend its voluntary production cuts into the second half of the year. If it does not, prices will plummet and OPEC+ knows this.

Meanwhile another Houthi attack on a ship in the Red Sea has reinforced suspicions that normal traffic through the Suez Canal is not about to return anytime soon, while Israel’s seizure of control over Gaza’s border with Egypt suggests the war there is not ending anytime soon either, and with it, the risk of escalation that could jeopardize Middle Eastern oil supply.

By Irina Slav for Oilprice.com

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