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Oil futures end higher on signs of strong U.S. gasoline demand

By William Watts

Demand for gasoline may lead energy complex higher in 'the best kind of rally,' trader says

Oil futures rose for a fourth straight session Wednesday, finding support after data showed a large drop in U.S. gasoline inventories and solid fuel demand ahead of the start of the summer driving season.

Crude has also been boosted this week by fears of a wider Middle Eastern conflict, after Tehran vowed retaliation for an Israeli strike on Iran's embassy in Syria that killed a top general and others.

Price moves

West Texas Intermediate crude CL00 for May delivery CL.1 CLK24 rose 28 cents, or 0.3%, to close at $85.43 a barrel on the New York Mercantile Exchange.June Brent crude BRN00 BRNM24, the global benchmark, settled with a gain of 43 cents, or 0.5%, at $89.35 a barrel on ICE Futures Europe. Wednesday saw the highest close for both WTI and Brent since Oct. 27.Back on Nymex, May gasoline RBK24 gained 0.1% to end at $2.761 a gallon, while May heating oil HOK24 rose 0.8% to $2.732 a gallon.May natural gas NGK24 finished with a gain of 1.1% at $1.841 per million British thermal units.

Market drivers

Oil futures shook off data from the Energy Information Administration that showed U.S. crude inventories rose 3.2 million barrels in the week ended March 29. Industry data from the American Petroleum Institute late Tuesday had shown a decline of 2.3 million barrels, while analysts surveyed by S&P Global Commodity Insights had expected the EIA data to show a rise of 600,000 barrels.

Fuel data was more encouraging, with gasoline inventories showing a drop of 4.3 million barrels. Analysts had expected a decline of 800,000 barrels. Distillate stocks dropped 1.3 million barrels versus a consensus forecast of 900,000 barrels.

Perhaps more important was the EIA's estimate of "finished motor gasoline supplied," or demand, which rose 521,000 barrels a day to 9.236 million barrels a day versus the all-time high of 10.043 million barrels a day seen in July 2021, said Robert Yawger, executive director for energy futures at Mizuho Securities, in a note.

"Gasoline demand is within 800,000 bpd of the all-time high with seven weeks to go until the Memorial Day weekend start to summer driving season," he said. "Strong gasoline numbers in today's EIA report raise the possibility that strong fundamentals around gasoline demand may be able to lead the barrels higher in coming weeks rather than geopolitical headlines, the best kind of rally."

Worries over the potential for a wider Middle Eastern conflict that could affect flows of crude from the region helped lift both WTI and Brent on Tuesday. Crude had previously been lifted as attacks on Russian energy infrastructure by Ukraine cut into Russia's refining capacity.

"Bottom line, geopolitics are driving the energy markets right nowand until tensions begin to ease and the attacks stop (or at least slow down) there will be a fear bid in oil," wrote analysts at Sevens Report Research. "Today, focus will be on the weekly EIA data as traders look for signs consumer demand is continuing to improve in 2024."

As expected, an online meeting of oil ministers from OPEC+ members, which includes the Organization of the Petroleum Exporting Countries and its Russia-led allies, on Wednesday recommended no changes to the group's plan to maintain voluntary production cuts of 2.2 million barrels a day through the second quarter, news reports said.

-William Watts

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04-03-24 1523ET

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