Oil Stabilizes After Four-Day Surge as US Product Markets Heat Up

Oil Prices Near Eight-Week Highs Amid Strong Products Market

Oil prices remained close to their highest closing levels in almost eight weeks, driven by strength in the products market, particularly with US gasoline prices reaching unprecedented heights.

West Texas Intermediate (WTI) crude oil was relatively stable, trading slightly above $114 a barrel after a four-day surge that marked the highest close since March 23. With the onset of the US summer driving season just weeks away, gasoline prices have soared due to increased demand and limited refining capacity.

WTI has been gaining momentum, outpacing its usual trends as it recorded last week’s gains while global oil benchmarks saw declines. This shift has narrowed the traditional discount of WTI compared to Brent, with prices now approaching parity.

The oil market has experienced significant volatility this year, with prices rising over 50% amid supply constraints resulting from the ongoing conflict in Europe and a resurgence in demand outside of China, which has been grappling with pandemic-related challenges. Additionally, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, have been cautious about ramping up production.

In Europe, efforts by the European Union to impose a ban on imports of Russian crude in response to the invasion of Ukraine have encountered delays due to opposition from Hungary. Josep Borrell, the EU’s foreign policy chief, mentioned that foreign ministers have decided to refer the impasse back to ambassadors for further discussions.

Vandana Hari, founder of a market analysis firm in Singapore, highlighted that the heightened tensions between the EU and Russia continue to create uncertainties around the bloc’s oil and gas supplies. However, she noted the recent $10 increase in crude prices may limit further upside unless significant negative developments occur.

In the US, crude oil stockpiles at the crucial storage hub in Cushing, Oklahoma, have contracted by about a quarter this year. Reports indicate that inventories at this delivery point for benchmark US futures likely decreased by approximately 2.629 million barrels during the week ending May 13.

The oil market is currently in a backwardation phase, a bullish indicator characterized by near-term prices being higher than those for longer-term contracts. On Tuesday, the prompt spread for Brent—reflecting the difference between its two nearest contracts—was more than $2 per barrel, a notable increase from late April when it was less than 50 cents.