Oil Prices Increase Due to Tight Supply and Rising U.S. Refining Activity, Reports Reuters

By David Gaffen

Oil prices experienced an uptick on Wednesday, driven by tight supplies and robust processing activity among U.S. refiners, which reached their highest level since before the COVID-19 pandemic. Futures for July rose by 47 cents, settling at $114.03 a barrel, while U.S. West Texas Intermediate (WTI) crude for July delivery gained 56 cents, finishing at $110.33 a barrel.

According to government data, crude stockpiles decreased by 1 million barrels last week, and gasoline inventories also saw a slight dip. In contrast, distillate stocks increased by 1.7 million barrels. Refiners ramped up their processing pace, achieving a capacity utilization rate of 93.2%, the highest since December 2019.

Refiners have been operating at full capacity to meet strong demand, particularly from international markets, with refined product exports surpassing 6.2 million barrels per day last week. Increased exports, combined with reduced refining capacity, have led to a significant decline in gasoline stocks in the U.S.

As the Memorial Day weekend approaches, travel is expected to be the busiest in two years, driving up fuel demand as more people hit the roads, despite elevated fuel prices. Gary Cunningham, director of market research at Tradition Energy, stated, "We’re not seeing any elasticity in refined products demand. People are still going to drive."

Global crude supplies are tightening as buyers shy away from Russian oil, the world’s second-largest exporter, in the aftermath of its invasion of Ukraine, which Moscow refers to as a "special military operation." The European Union is aiming to reach an agreement on sanctions that would gradually eliminate Russian oil imports before the next European Council meeting, according to Council President Charles Michel.

Despite no formal ban, many European companies are self-sanctioning, resulting in a historic volume of Russia’s Urals crude oil stranded on vessels at sea as it seeks buyers.

Conversely, strict COVID-19 measures in China, the world’s largest oil importer, are complicating matters. Beijing has introduced new restrictions, and Shanghai plans to maintain the majority of its curbs throughout the month.