Oil Prices Rise as US Gasoline Market Tightens, China May Relax Restrictions

Oil prices surged amid signs of tightening in key U.S. product markets and speculation that China may be planning to ease its anti-virus lockdowns, which have significantly impacted crude demand in the world’s largest importer.

West Texas Intermediate climbed above $113 a barrel following a decline on Tuesday. The American Petroleum Institute reported a drop in gasoline inventories by more than 5 million barrels last week, according to sources familiar with the data, which also indicated a decrease in crude stockpiles. Official inventory figures will be released later on Wednesday.

In Asia, traders are closely monitoring indications that Chinese officials may soon relax restrictions imposed on Shanghai and other cities due to a coronavirus outbreak, a move that could revitalize energy consumption. The major commercial hub reported no new cases outside of quarantine zones.

Oil is on track for its sixth consecutive monthly increase, potentially marking the best performance in a decade, driven by rising demand and disruptions caused by the conflict in Ukraine. This price increase is contributing to soaring inflation, with Federal Reserve Chair Jerome Powell stating on Tuesday that the central bank will continue to raise interest rates until there is clear evidence of a slowdown in price increases.

“U.S. inventory data has been supportive for oil,” noted Warren Patterson, head of commodities strategy at ING Groep in Singapore. “A tightening gasoline market as we enter the driving season should bolster crude demand, necessitating higher refinery operations.”

The oil market is experiencing backwardation, a bullish trend where near-term prices exceed those of later dates. The spread between WTI’s two nearest December contracts has risen to nearly $13 a barrel, up from $5 at the beginning of the year.

U.S. gasoline prices, both in futures contracts and at the pump, have reached record levels even after President Joe Biden’s order to release substantial amounts of crude from strategic reserves. Gasoline inventories have already fallen by about 3% in 2022, now lying below the five-year seasonal average.

With the summer driving season approaching, consumers are facing high fuel costs. Retail gasoline prices have surpassed $4 a gallon in all U.S. states for the first time, with California experiencing the highest rates, averaging more than $6 per gallon, according to data.

This article reflects ongoing trends and developments in the oil market, underscoring the complex dynamics affecting pricing and inventory levels in the context of global events.