Oil futures settle at fresh 7-week highs as U.S. crude and gasoline supplies decline

By Myra P. Saefong and William Watts

Rising geopolitical worries aid crude's rebound off mid-June lows

Oil futures climbed on Thursday to settle at fresh seven-week highs on the back of weekly declines in U.S. crude and gasoline inventories, as rising geopolitical tensions lifted concerns about disruptions to global supply chains.

Price moves

West Texas Intermediate crude for July delivery CL.1 CLN24 rose 60 cents, or 0.7%, to settle at at $82.17 a barrel on the New York Mercantile Exchange on the contract's expiration day. August WTI CL00 CLQ24, which is now the front-month contract, settled at $81.29 a barrel, up 58 cents, or 0.7%. WTI didn't settle Wednesday due to the Juneteenth holiday.August Brent crude BRN00 BRNQ24, the global benchmark, climbed 64 cents, or nearly 0.8%, to $85.71 a barrel on ICE Futures Europe. Brent settled at its highest since April 30. July gasoline RBN24 added 0.7% to $2.50 a gallon, while July heating oil HON24 edged up by nearly 0.2% to $2.52 a gallon.Natural gas for July delivery NGN24 settled at $2.74 per million British thermal units, down 5.8%.

Supply data

U.S. commercial crude inventories fell by 2.5 million barrels for the week ended June 14, after posting two consecutive weekly gains, according to data from the Energy Information Administration released Thursday. The data came out a day later than usual due to Wednesday's Juneteenth holiday.

On average, analysts had forecast a crude supply decline of 4.1 million barrels, according to a poll conducted by S&P Global Commodity Insights. Late Tuesday, the American Petroleum Institute reported a crude inventory climb of 2.26 million barrels, according to a source citing the data.

"A decent jump higher in crude exports was enough to overpower a dip in refining activity last week to encourage a draw to crude inventories - for the first week in three," said Matt Smith, head analyst U.S., at Kpler.

Nonetheless, refining activity was still strong, up 300,000 barrels per day versus year-ago levels, he told MarketWatch in emailed comments. While total crude imports may have been lower week-on-week, they were still very strong at over 7 million barrels per day, "helping to temper the draw."

The EIA report also showed weekly supply declines of 2.3 million barrels for gasoline and 1.7 million barrels for distillates. The S&P Global Commodity Insights survey called for inventory gains of 100,000 barrels for gasoline and 280,000 barrels for distillates.

"A dip in refining and an increase in implied demand" meant both gasoline and distillate inventories marked weekly declines, "rounding out a fairly supportive report for prices," said Smith.

U.S. oil production was unchanged at 13.2 million barrels per day in the latest week, the EIA said, while crude stocks at the Cushing, Okla., Nymex delivery hub rose by 300,000 barrels to 34.1 million barrels.

The EIA will release its weekly report on U.S. natural-gas supplies in storage on Friday.

Other market drivers

Oil futures have bounced back from an early June selloff, with both WTI and Brent hitting their highest levels since late April. Part of the boost is attributed to an escalation in geopolitical fears.

Those concerns are tied to continued Ukrainian drone strikes on Russian oil infrastructure and increasing hostilities between Israel and Iran-backed Hezbollah. Israel's military has approved plans for a possible invasion of Lebanon, the Wall Street Journal reported, raising the risk of a wider war that could endanger crude flows from the Middle East.

"These rising geopolitical tensions in Europe and the Middle East continue to support crude prices due to risks of disruptions to global supply chains. However, the increase in oil prices remains tempered by cautious remarks from U.S. Federal Reserve officials regarding interest rates and inflation trends," said Eman AlAyyaf, CEO of EA Trading, in a note.

Meanwhile, the Atlantic hurricane season has seen its first named storm of the year, reminding energy traders of the threat to Gulf of Mexico energy production.

Alberto has been downgraded to a depression from a tropical storm and brought flash flooding to northeastern Mexico Thursday. It's the first storm to make landfall this year in what is forecast to be a busy Atlantic tropical storm season, but there haven't been any reports of shut ins of refinery operations or pipe flows, Robert Yawger, director of energy futures at Mizuho Securities USA, wrote in a daily report.

"When a refinery goes down, gasoline should be bid on lack of production, while crude oil prices should slide as barrels back up into storage," he said. "Of course, the market is hostage to the spec after the headline, and if history is any indication, crude oil is just as likely to rally as fall." The Atlantic hurricane season runs through Nov. 30.

-Myra P. Saefong -William Watts

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06-20-24 1517ET

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