Oil Drops 2.5% as U.S. Refiners Increase Output, Equities Decline – Reuters

By Arathy Somasekhar

HOUSTON (Reuters) – Oil prices experienced a 2.5% decline on Wednesday, reversing earlier gains as traders became less concerned about a potential supply shortage. This shift followed government data indicating that U.S. refiners had increased output, and as crude futures mirrored a downturn in Wall Street.

July futures settled down $2.82, or 2.5%, at $109.11 a barrel, while U.S. West Texas Intermediate (WTI) crude for June decreased by $2.81, also a 2.5% drop, to $109.59 a barrel.

Both benchmarks surrendered early increases of $2 to $3 a barrel as risk sentiment shifted and equity markets fell, noted UBS analyst Giovanni Staunovo.

According to government data, inventories fell by 3.4 million barrels last week, an unexpected reduction, as refiners increased their output in response to tight product stocks and near-record exports. This scenario has driven U.S. diesel and gasoline prices to unprecedented levels.

Gasoline prices in the U.S. dropped by 5% just two days after hitting an all-time high. Capacity utilization on both the East Coast and Gulf Coast was reported to be above 95%, indicating that these refineries are operating at nearly their maximum capacity.

"Despite the seemingly bullish nature of the report, refiners are urgently trying to supply more refined products to the market. There’s clearly a response from the refiners," said John Kilduff, a partner at Again Capital LLC.

The dollar strengthened while global stocks fell due to concerns regarding economic growth and rising inflation.

Bearish sentiment was also fueled by reports suggesting that the U.S. is considering easing sanctions on Venezuela, which would allow Chevron to negotiate oil licenses with the state-run producer PDVSA.

"The prospect of increased supply from Venezuela, along with falling equity markets, is leading to profit-taking and a necessary technical correction in crude prices," explained Dennis Kissler, senior vice president for trading at BOK Financial.

Price pressures were further influenced by the European Union’s inability to persuade Hungary to lift its veto on a proposed embargo on Russian oil. However, some diplomats anticipate an agreement on a phased ban at the upcoming summit.

Despite these fluctuations, ongoing supply concerns offered some support. An internal OPEC+ report revealed that Russian crude output fell by nearly 9% in April compared to the previous month, as Western sanctions have limited exports.

On the demand front, there were signs of recovery hopes as China eased COVID-19 lockdown measures. Reports indicated that 864 financial institutions in Shanghai were authorized to resume operations, and the country has relaxed some testing requirements for travelers from the U.S. and other nations.