Reuters reported July 6 that oil prices settled up nearly 2% as robust U.S. economic data lifted crude futures from two days of declines, with the market extending gains in post-settlement trade on bets for a sharp drop in U.S. crude stockpiles. The American Petroleum Institute trade group said its data showed U.S. crude stockpiles fell by 6.7 million barrels last week, declining for a seventh week in a row. The API figure was nearly triple the crude drawdown expected by analysts in a Reuters poll.
Gasoline inventories reported by API were also markedly lower by 3.6 million barrels versus a 0.4 million-barrel decline projected by analysts. Kilduff, partner at New York energy hedge fund Again Capital, said of the API data. Oil prices were pressured in early trading by a gasoline glut and woes from Britain’s European Union exit. The market rebounded later on upbeat U.S. economic data showing a seven-month high in U.S. services industry activity.
Brent crude settled at $48.80 a barrel. It got as high as $49.30 after the release of the API data. Despite Wednesday’s price advance, some traders and analysts cautioned about a glut of U.S. gasoline oversupplies that could offset the bullish impact of crude drawdowns. The profit from turning U.S. crude into gasoline known as the gasoline “crack,” hit a 4-1/2-month low earlier on Wednesday despite expectations a record number of motorists would hit the road during the July 4 holiday weekend.
As a result, some refiners have cut production rates. For example, Delta Airlines has cut production at its Philadelphia-area refinery by roughly 16%, as announced by Reuters on July 5, as refining margins have fallen below their ten-year average for this time of year.
It is unusual for refiners to be cutting production during the busy, summer driving season. The move comes as the U.S. East Coast is brimming with petroleum products leaving full tankers to sit idle in the New York Harbor as they wait to unload. The supply glut has helped hammer gasoline margins, which have fallen to their lowest levels since February. It’s unclear whether the production cuts at the 185,000 bpd Philadelphia refinery are related to weakening gasoline margins or something unrelated, the source said.