Crude futures rise on US stock draw; Russian oil output recovery caps gains

Crude oil futures were higher in mid-morning Asian trade May 26, extending overnight gains amid support from a draw in US crude and gasoline inventories last week.

At 11:07 am Singapore time (0307 GMT), the ICE July Brent futures contract was up 51 cents/b (0.45%) from the previous close at $114.54/b, while the NYMEX July light sweet crude contract rose 61 cents/b (0.55%) to $110.94/b.

US gasoline stocks fell by 480,000 barrels in the week ended May 20 to 219.71 million barrels, nearly 8% below the five-year average, according to the Energy Information Administration.

US gasoline stocks have never been so tight relative to the five-year average this close to the start of the summer driving season, which traditionally begins after the May 30 Memorial Day holiday.

"The beginning of the summer driving season is here and the pent-up demand for travel is so high that Americans will travel regardless of the price at the pump," OANDA senior market analyst Edward Moya said in a May 26 note.

The American Automobile Association forecasts an 8% year-on-year increase in travel over the upcoming weekend.

Despite a rise in refinery utilization rates, gasoline output has declined as refiners continue to maximize distillate production at the expense of gasoline. Distillate stocks rose by 1.7 million barrels to 106.92 million barrels over the same period.

Meanwhile, crude oil stocks fell by 1.02 million barrels to 419.8 million barrels.

Nonetheless, conflicting signals have kept both crude oil markers trading in a narrow range in recent weeks.

"Russian oil supply is not falling as much due to robust purchases by India and demand is rising less dynamically than expected as a result of the corona[virus] lockdowns in China," Commerzbank analysts said in a late May 25 note.

Russia's Deputy Prime Minister Alexander Novak said late in the week ended May 20 that Russian oil production has risen by 200,000-300,000 b/d on the month in May and will continue to increase next month, after a fall of 1 million b/d in April, the Prime news agency reported.

"Moreover, the release of strategic oil reserves is bringing additional oil to the market. The oil market should therefore be sufficiently supplied in the second half of the year," the analysts said.

Commerzbank analysts added they now expect ICE Brent crude to fall to $95/b by year-end due to the additional supply.

Dubai crude swaps and intermonth spreads were lower in mid-morning trade in Asia May 26 from the previous close.

The July Dubai swap was pegged at $103.93/b at 10 am Singapore time (0200 GMT), down 45 cents/b (0.43%) from the May 25 Asian market close.

The June-July Dubai swap intermonth spread was pegged at $2.72/b at 10 am Singapore time, down 28 cents/b over the same period, and the July-August intermonth spread was pegged at $2.36/b, down 11 cents/b.

The July Brent/Dubai EFS was pegged at $9.93/b, down 23 cents/b.