By Barani Krishnan
Investing.com -- U.S. refiners may be processing oil at full tilt to meet projected summer demand, but OPEC+’s first generous post-pandemic production boost raises questions about the outlook for crude prices.
Both London-traded Brent and New York’s West Texas Intermediate rose for a second day in a row after the U.S. Energy Information Administration reported strong across-the-board drawdowns in crude and fuel inventories for last week.
But the bigger story hanging over the market — and likely to matter as soon as the euphoria over the EIA report fades — is the OPEC+ decision to raise output by 648,000 barrels per day (bpd) in July and 648,000 bpd in August. Insiders in the global oil exporters alliance broke it down to the media as the group putting out three months’ worth of production into two.
The decision, coming amid the increasing squeeze applied by the West on major OPEC+ collaborator Russia — the latest being the denial of shipping insurance for Russian oil and gas exports — shouldn’t be a surprise on the surface of it.
Yet, the first generous exports boost by the alliance, which has been extremely tight-fisted with its oil supply since the 2020 Covid disaster that took crude prices to historic negative levels, could put a psychological cap on the market’s upside.
“It certainly isn’t in OPEC’s interests to send the world into a recession,” said Jeffrey Halley, who oversees Asia Pacific for online trading platform OANDA. “It's amazing how US gasoline prices and mid-term elections focus the mind.”
The average price of gasoline at US pumps hit all-time highs near $4.72 a gallon this week, up from $3.04 a year ago. Diesel averaged $5.56 a gallon, up from $3.19 a year ago.
“These prices are stinging consumers, and forcing them to change their habits,” Fox News said in a gas station roundup on Thursday, noting that while the Automobile Association of America, or AAA, had projected a travel surge for this summer, it still expected fewer trips and miles driven due to record fuel prices.
Demand for gasoline for the four weeks ending the third week of May was down 2.6% compared with last year, and down 6.7% compared with pre-pandemic years of 2016-2019, Andy Lipow, president at Lipow Oil Associates, told Fox, citing EIA data.
In Thursday’s trade, Brent, the global benchmark for crude, settled up $1.32, or 1.1%, at $117.61 for a barrel meant for August delivery. Brent gained 0.6% a day earlier.
WTI, the benchmark for US crude, settled up $1.61, or 1.4%, at $116.87 per barrel, extending the previous session’s 0.5% gain.
Thursday’s gains in oil came after the EIA reported a crude stockpile drop of 5.07 million barrels last week, the most since an 8.02 million drawdown during the week to April 15.
Oil processing remained near 93% of capacity as refiners ran at full tilt to manage demand anticipated for the summer.
Gasoline inventories fell by 711,000 barrels, extending a streak of declines dating back to the week ended April 1.
With distillate stockpiles, there was a drop of 530,000 barrels last week, the first since a decline of 913,000 barrels during the week to May 6.