Oil Rises Slightly; U.S. Distillate Stocks Surge Amid Record Prices

By Barani Krishnan

Oil prices experienced a rise on Wednesday following data that indicated a weekly decline in U.S. crude and gasoline inventories.

However, an increase in distillate stockpiles tempered the market’s gains, as record-high diesel prices suggested that a reduction in demand might be underway for the middle-of-the-barrel oil typically used to produce fuels essential for commercial transportation.

Crude oil for July delivery in New York settled up 56 cents, or 0.5%, reaching $110.33 per barrel. In London, crude for August delivery was priced at $111.11 per barrel by 2:36 PM ET, up 42 cents or 0.4% for the day.

Oil prices gained traction as the U.S. reported a drawdown of 1.02 million barrels of crude for the week ending May 20, adding to the previous week’s draw of 3.4 million barrels. Analysts had anticipated a decline of only 737,000 barrels for the most recent week.

On the consumption side, the previous week’s usage saw an increase of 482,000 barrels, building on the prior week’s total of 4.78 million barrels. Analysts had predicted a drawdown of just 634,000 barrels.

Despite this, distillate inventories rose for the second consecutive week, according to data from the Energy Information Administration (EIA), indicating that high prices were starting to prompt a decrease in demand for distillates, which are crucial for producing diesel and other fuels necessary for commercial transport.

Distillates increased by 1.657 million barrels last week, following a 1.235 million barrel rise during the previous week.

Known as middle-of-the-barrel oil, distillates are refined into diesel, utilized in trucks, buses, trains, ships, and aircraft.

The consecutive increase in distillate inventories stands in contrast to earlier data from the year, which showed continuous draws in fuel stockpiles as the commercial transportation sector became a key growth area within the U.S. fuels market.

This increase in distillate inventories coincided with record-high diesel prices that have been observed since late April, with some locations in the U.S. reporting prices exceeding $6 per gallon.

John Kilduff, a partner at an energy hedge fund, noted, “At $6 per gallon, truckers and other diesel consumers are starting to maximize fuel efficiency, reducing unnecessary consumption. This is directly contributing to demand destruction in diesel.”

Diesel prices, alongside gasoline prices—which have also reached unprecedented levels above $4.50 per gallon—began climbing in mid-2021 as global crude supplies tightened due to the economic recovery from the pandemic.

The situation has been exacerbated by the ongoing crisis between Russia and Ukraine, which has intensified supply shortages across various energy products, resulting in significant price increases worldwide.

In the U.S., multiple refinery closures during the pandemic have further diminished oil refining capacity, adding to the existing issues.

In an effort to mitigate the supply crisis and curb rising fuel costs, the Biden administration has resorted to drawing oil from the nation’s Strategic Petroleum Reserve (SPR). As of last week, the SPR held 532 million barrels, its lowest level in nearly 35 years, following an increase in the administration’s withdrawals to six million barrels weekly, up from three million.