By Barani Krishnan
Investing.com -- Crude prices struggled again to keep up with their huge weekly opening rally triggered by the OPEC+ announcement on production cuts, as a U.S. weekly inventory report on Wednesday showed the government had drawn down reserves again to add to market supply and limit fuel price hikes.
U.S. crude stockpiles fell sharply for a second week in a row, accompanied by large drawdowns as well in gasoline and distillates inventories as domestic refiners prepared for busy summer travels, weekly government data released on Wednesday showed.
Crude balances in storage fell by 3.739 million barrels during the week ended March 31, the U.S. Energy Information Administration, or EIA, said in its Weekly Petroleum Status Report. In the previous week to March 24, crude stockpiles tumbled by 7.489M barrels. Analysts tracked by Investing.com had expected the EIA to report a crude balance decline of 2.329M barrels instead.
But within the weekly EIA report was a line showing there was a draw of 3.7M barrels as well from the Strategic Petroleum Reserve, or SPR.
It was the first SPR draw of its kind for this year although it was scheduled from last year as part of the 2022 budget.
The Biden administration had leaned on the reserve heavily since late 2021 to offset tight crude supplies that had raised fuel costs for Americans. As of last week, the SPR’s crude balance was at its lowest since November 1983.
“The latest EIA report is definitely positive on all fronts but crude bulls were probably tempered in their ardor by the SPR draw, which like a nemesis has returned to haunt the longs in the market,” said John Kilduff, partner at New York energy hedge fund Again Capital.
“Of course, the administration cannot use the SPR like before, and it won’t be a threat to the crude balance situation like last year,” Kilduff said. “Yet, the SPR is like a nemesis to oil bulls. They just hate it and it’s probably why the market did not really take off in a big way right after the data.”
An hour to settlement, New York-traded West Texas Intermediate, or WTI, crude was unchanged at $80.71 a barrel. It was a repeat of the previous session when WTI rose just 29 cents, or 0.4%, after Monday’s 6.3% rally on the back of plans by OPEC+ to reduce another 1.7M barrels daily from output, on top of existing cuts of 2.0M barrels per day imposed since November.
Brent crude was up 20 cents, or 0.2%, after rising just a penny on Tuesday. Like WTI, Brent had gained 6.3%.
On the gasoline inventory front, the EIA cited a drawdown of 4.119M barrels versus the forecast drop of 1.729M barrels, and against the previous weekly decline of 2.904M barrels. Automotive fuel gasoline is the No. 1 U.S. fuel product.
With distillate stockpiles, the EIA reported a 3.632M barrel draw, against expectations for a drop of 0.396M barrels and versus the prior week’s build of 0.218M. Distillates, which are refined into heating oil, diesel for trucks, buses, trains and ships and fuel for jets, had been the strongest demand component earlier in the year.