The Oil Market on Wednesday Continued to Trend Higher Following a Large Unexpected Draw in Crude Oil Stocks

Recap:  The oil market on Wednesday continued to trend higher following a large unexpected draw in crude oil stocks and a warning from the Saudi Energy Minister on Tuesday that raised the prospect of further OPEC+ production cuts. The market traded higher overnight following the API report showing a draw of 6.8 million barrels late Tuesday afternoon. The market continued on its upward trend and rallied to a high of $74.73, breaching its two-week trading range, following the release of the EIA weekly petroleum stock report showing a larger than expected draw of over 12 million barrels on the week. The market later erased some of its gains and sold off to a low of $73.13 early in the afternoon. However, the oil market bounced off its low and rallied back over the $74.00 level ahead of the close. The July WTI contract settled up $1.43 at $74.34 and the July Brent contract settled up $1.52 at $78.36. The product markets ended the session in positive territory, with the heating oil market settling up 5.2 cents at $2.4137 and the RB market settling up 5.9 cents at $2.7212.

Technical Analysis:  The oil market on Thursday will likely erase some of its gains as it awaits for further developments on the debt ceiling negotiations. However, its losses will be limited amid the draws reported in oil stocks and the prospect of a further OPEC+ production cut. The market is seen finding resistance at its high of $74.73, $75.93, $76.11 followed by $76.69, $76.92 and $77.93. Meanwhile, support is seen at $73.13 followed by $71.71, $70.55, $70.04 and $69.41. 

Fundamental News:  The EIA reported that U.S. crude oil and distillate inventories fell unexpectedly last week, while gasoline stockpiles declined more than forecast. Crude inventories fell by 12.5 million barrels in the week ending May 19th to 455.2 million barrels, ahead of the Memorial Day weekend holiday. The EIA also reported that crude oil stocks in the SPR fell by 1.6 million barrels on the week to 358 million barrels, the lowest level since September 1983. U.S. distillate fuel stocks fell by 561,000 barrels in the week ending May 19th to 105.7 million barrels, its lowest level in a year. Stocks in the Midwest fell to 24.1 million barrels, its lowest level since December 2020.

Russia’s Energy Minister, Nikolai Shulginov, said Russia is considering restricting its exports of gasoline and will propose such a measure if needed. However, he said that retail prices were stable and that Russia was not looking at a ban on exports. Meanwhile President Putin said Wednesday that energy prices were approaching “economically justified” levels and that Russia was continuing to meet its commitments on energy supplies.  

Rystad Energy noted that almost 2.7 million b/d of Alberta’s daily oil sands production are now in zones with “very high” or “extreme” wildfire danger.

India’s oil minister noted that it sees some OPEC+ countries have not cut output as earlier agreed upon.

According to minutes of the Federal Reserve’s May 2nd-3rd meeting, Federal Reserve officials "generally agreed" that the need for further interest rate increases "had become less certain," with several saying that the quarter-percentage-point increase they approved might be the last. Others cautioned the U.S. central bank needed to keep its options open given the risks of persistent inflation.

Early Market Call - as of 7:50 AM EDT

WTI - July $72.90, down $1.44

RBOB - June $2.6701, down 5.11 cents