Oil futures end lower as U.S. crude supplies post an unexpected gain and product stocks jump

On average, analysts polled by S&P Global Commodity Insights expected the report to show a decline of 900,000 barrels. On late Tuesday, the American Petroleum Institute trade group said crude inventories fell 5.2 million barrels, according to a source citing the figures.

The EIA report also revealed supply increases of 8 million barrels for gasoline and 6.5 million barrels for distillates.

“Ongoing strength in refining activity has resulted in another week of solid builds to the products,” said Matt Smith, Americas lead analyst at Kpler. Lower crude exports, as is typical at the start of each month, have also helped to “encourage a minor build” in crude stockpiles.  

Analysts had forecast weekly supply gains of 4.9 million barrels for gasoline and 3.7 million barrels for distillates, according to S&P Global Commodity Insights.

“This full house of bearish builds is offsetting the supportive influence of Red Sea concerns and Libyan supply disruptions,” Smith said.

However, refining activity is going to drop significantly in the weeks ahead, as maintenance kicks in to slow product-inventory builds, he noted.

The EIA also reported that crude stocks at the Nymex delivery hub in Cushing, Okla., edged down by 500,000 barrels last week.

Market drivers

Oil futures had finished higher Tuesday, recouping some of their losses from a Monday drop attributed to Saudi Arabia’s decision to cut its official selling price for crude to all regions.

The recent price cut by the Saudis is seen as a “negative signal, indicating supply concerns and growing unease about potential market-share losses to non-OPEC suppliers within the Saudi ranks,” Stephen Innes, managing partner at SPI Asset Management, told MarketWatch.

Read: Record U.S. oil production sparks battle for market share with Saudi Arabia and OPEC+

Tuesday’s bounce in oil prices had come after fears that the Israel-Hamas war could spiral into a wider conflict, capable of threatening crude supplies from the Middle East, were reignited after the Israeli military stated that it expects the war to continue through 2024.

The oil market is likely to “remain on a roller coaster for the foreseeable future, with the potential disruption of supply through the Strait of Hormuz counteracting concerns related to supply and demand,” Innes said.

Adjusting market premiums to accommodate longer oil-shipping routes, avoiding the Red Sea and incurring higher maritime-insurance costs, is already factored into prices and “reflects the market’s response to ongoing disruptions caused by Houthi activities,” he said.

Looking ahead, Innes believes the most significant downside risk for crude-oil prices is in “OPEC+’s ability to curb supply further and ensure compliance among all members.”

Concerns were raised during the last OPEC+ meeting at the end of November “when the cartel couldn’t develop an extensive new agreement,” he said. That fueled worries that OPEC+, particularly Saudi Arabia, “may have reached the limits of their commitment to [output] cuts.”