Oil prices post back-to-back gains, but lackluster gasoline demand raises concerns

By Myra P. Saefong and William Watts

Natural-gas futures rally after smaller-than-expected weekly rise in supplies

Oil futures finished higher on Thursday, building on the gain seen in the previous session after U.S. data showed an unexpected drop in last week's crude supplies - though weakness in domestic gasoline demand raised concerns over the outlook for the market.

Natural-gas futures, meanwhile, outperformed oil, climbing by more than 5% as weekly U.S. supplies rose less than expected and warmer weather looks set to boost demand.

Price moves

West Texas Intermediate crude CL00 for June delivery CL.1 CLM24 rose 27 cents, or 0.3%, to settle at $79.26 a barrel on the New York Mercantile Exchange, after climbing by 0.8% Wednesday.July Brent crude BRN00 BRNN24, the global benchmark, added 30 cents, or 0.4%, to $83.88 a barrel on ICE Futures Europe.June gasoline RBM24 tacked on 0.4% to $2.54 a gallon, while June heating oil HOM24 rose nearly 0.1% to $2.48 a gallon.Natural gas for June delivery NGM24 settled at $2.30 per million British thermal units, up 5.2% for the session and the highest level since Jan. 29.

Drivers for oil

Oil prices got a boost after the U.S. Energy Information Administration's weekly report, released Wednesday, unveiled a notable draw in U.S. crude-oil inventories, according to Joseph Dahrieh, managing principal at brokerage Tickmill. "The decline supported the market after a month of price corrections as the market reacted to geopolitical developments," he said in emailed commentary.

Crude reversed losses in Wednesday's session after the EIA reported that U.S. crude inventories fell 1.4 million barrels in the week ending May 3. Analysts surveyed by S&P Global Commodity Insight had expected inventories to rise 300,000 barrels, while American Petroleum Institute, an industry trade group, had reported a crude-inventory gain of 509,000 barrels, according to a source citing the data.

The EIA data, however, also showed stocks of gasoline rose 900,000 barrels, while distillates were up 600,000 barrels. Concerns about gasoline demand are a negative factor for energy futures heading into summer driving season, which begins Memorial Day weekend.

Read: Recession-wary investors are watching gasoline demand for clues to consumer health

The EIA report showed gasoline supplied, a proxy for demand, rose 178,000 barrels a day to 8.797 million barrels a day, or mbd, remaining below the 9 mbd threshold for a fifth straight week.

The four-week average at 8.625 mbd is 363,000 barrels a day below last year and, other than during the COVID pandemic in 2020, is the lowest for this time of year since 2013, according to Robert Yawger, executive director for energy futures at Mizuho Securities.

"Gasoline fundamentals heading into summer driving season are supposed to put a big bid in the market heading into summer driving season. It is gasoline's time to shine and rally the barrel to seasonal highs," he said. "That is not happening this year."

If refiners don't need to make more gasoline, they don't need to buy more crude. "Traders can ride headlines for weeks at a time, but at the end of the day, the market will always revert back to fundamentals, and right now they are not good," he said.

Meanwhile, the U.S. dollar has strengthened this quarter and traded higher for the week. The ICE U.S. Dollar index DXY was up 0.2% from last Friday.

Gains in oil have been tempered by the resilient dollar and "lingering uncertainties regarding U.S. interest rate cuts and potentially declining geopolitical risks in the Middle East," Dahrieh said.

"The latter could continue to expose the market to increased volatility as conditions in the region change rapidly, while successful cease-fire negotiations could weigh on oil prices," he said.

At the same time, the oil market could find support in the U.S. government's plans to boost the Strategic Petroleum Reserve, while the Organization of the Petroleum Exporting Countries could maintain its production cuts to support prices, said Dahrieh. OPEC will next meet on June 1.

Natural-gas rally

In other energy dealings, prices for natural gas finished more than 5% higher Thursday, at their highest since late January, after the EIA on Thursday reported an increase of 79 billion cubic feet in domestic supplies for the week ended May 3.

That was less than the average 84 billion cubic feet forecast by analysts polled by S&P Global Commodity Insights.

The data showed that the storage surplus to the five-year average decreased to 33.3% from 34.9%, said Victoria Dircksen, commodity analyst at Schneider Electric, in market commentary.

Heat is expected to build across the southern U.S. as late May and June progress, increasing national demand and shrinking supply builds, she said, citing a forecast from the National Oceanic and Atmospheric Administration.

-Myra P. Saefong -William Watts

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05-09-24 1509ET

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