U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Thursday after rebounding from early weakness. The catalysts behind the early price dip was a report that showed weaker-than-expected U.S. gasoline demand. Traders are now awaiting a fresh demand outlook from OPEC that could set the tone later in the session.
Prices Rise after Government Reports Surge in Consumer Prices
It could be coincidental, but crude oil prices strengthened after a government report showed a surge in consumer prices in May that fanned fears of early policy tightening by the Federal Reserve, while another report showed the labor market remained under pressure.
The Labor Department said its consumer price index increased 0.6% last month after surging 0.8% in April. In the 12 months through May, CPI accelerated 5.0% in its biggest year-on-year increase since August 2008.
The jump partly reflected the dropping of last spring’s weak reading from the calculation. These so-called base effects are expected to level off in June.
Crude Inventories Fall, but Gasoline Stocks Stubbornly Higher
U.S. crude oil stockpiles that include the Strategic Petroleum Reserve (SPR) fell for the 11th straight week as refiners ramped up output, but fuel inventories grew sharply due to weak consumer demand, the Energy Information Administration (EIA) said on Wednesday.
The growth in fuel inventories indicates weak U.S. driving season fuel demand. Fuel stocks were up sharply, with product supplied falling to 17.7 million barrels per day versus 19.1 million the week before. Meanwhile, crude inventories that exclude the SPR fell by 5.2 million barrels in the week to June 4 to 474 million barrels, the third consecutive weekly drop.
Implied gasoline demand fell to 8.48 million bpd in the week to June 4, down from 9.15 million bpd from the week before, but up from 7.9 million bpd a year ago, EIA data showed.
Thursday’s recovery in the crude oil market suggests that bullish traders believe the weakness in gasoline demand is just temporary and that conditions will improve throughout the summer. Furthermore, gasoline inventories may still be mildly distorted following the Colonial Pipeline shutdown.